-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MqqF00fHaSf2KW3FPqFtwdktbjPMz7yt75DhBF66u5jx0gLC6fVnoDBD50bCNKhU D3WW0C1325NWu6OTWPhyaw== 0000950123-00-005071.txt : 20000516 0000950123-00-005071.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950123-00-005071 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST UNION REAL ESTATE EQUITY & MORTGAGE INVESTMENTS CENTRAL INDEX KEY: 0000037008 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 346513657 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06249 FILM NUMBER: 633221 BUSINESS ADDRESS: STREET 1: 55 PUBLIC SQUARE STREET 2: STE 1900 CITY: CLEVELAND STATE: OH ZIP: 44113 BUSINESS PHONE: 2167814030 MAIL ADDRESS: STREET 1: 55 PUBLIC SQUARE SUITE 1910 CITY: CLEVELAND STATE: OH ZIP: 44113 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION REALTY DATE OF NAME CHANGE: 19691012 10-Q 1 QUARTERLY REPORT 1 - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------- FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 -------- For Quarter Ended March 31, 2000 Commission File Number 1-6249 -------------- ------ First Union Real Estate Equity and Mortgage Investments - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-6513657 - ------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 551 Fifth Avenue, Suite 1416 New York, New York 10176-1499 - ------------------------------------- ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 905-1104 ----------------- - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 42,471,729 Shares of Beneficial Interest outstanding as of March 31, 2000 - -------------------------------------------------------------------------------- ================================================================================ Total number of pages contained in this report: 19 -------- 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. The financial statements represent the combined results of the registrant, First Union Real Estate Equity and Mortgage Investments (the "Trust") and First Union Management Inc., (the "Company"). Under a trust agreement, the shares of the Company are held for the benefit of the shareholders of the Trust. Accordingly, the financial statements of the Company and the Trust have been combined. Additionally, the Company owned voting control of Imperial Parking Limited ("Impark"). The Trust distributed all common stock of Impark to its shareholders in March 2000 and has classified Impark's financial information as discontinued operations. The combined financial statements included herein have been prepared by the Trust, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Trust believes that the disclosures contained herein are adequate to make the information presented not misleading. These combined financial statements should be read in conjunction with the combined financial statements and the notes thereto included in the Trust's latest annual report on Form 10-K/A. The "Combined Balance Sheets" as of March 31, 2000 (unaudited) and December 31, 1999 (audited) and "Combined Statements of Operations, Combined Statements of Comprehensive Income and Combined Statements of Cash Flows" for the periods ended March 31, 2000 (unaudited) and 1999 (unaudited), of the Trust, and "Notes to Combined Financial Statements," are included herein. These financial statements reflect, in the opinion of the Trust, all adjustments (consisting of normal recurring accruals) necessary to present fairly the combined financial position and results of operations for the respective periods in conformity with generally accepted accounting principles consistently applied. The results of operations for the three months ended March 31, 2000 and 1999, are not necessarily indicative of the results to be expected for the full year. Certain amounts from 1999 have been reclassified to conform to the 2000 presentation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Financial Condition In March 2000, the Trust distributed all common stock of Impark to its shareholders. One share of Impark common stock was distributed for every 20 of the Trust's common shares of beneficial interest held on March 20, 2000. Approximately 2.1 million shares of Impark common stock were distributed. As part of the spin-off, the Trust repaid Impark's bank credit facility of approximately $24.2 million, contributed approximately $7.5 million of cash, its 14 Canadian parking properties and $6.7 million for a parking development located in San Francisco, California. The Trust will also provide a secured line of credit for $8 million to Impark. As of May 1, 2000, there were no outstanding amounts under the line of credit. Impark's common stock is listed on the American Stock Exchange under the symbol "IPK". Ownership of Ventek International, Inc., a manufacturing subsidiary of Impark, was retained by the Company. The Trust also adjusted the conversion price with respect to its Series A Cumulative Redeemable Preferred Shares of Beneficial Interest ("Preferred Shares"). The conversion price of the Preferred Shares has been decreased to $5.0824 per common share (equivalent to a conversion rate of 4.92 common shares for each Preferred Share) in connection with the distribution of the Impark shares, in accordance with the provisions of the documents establishing the terms of the Preferred Shares. 2 3 For tax reporting purposes, the Trust will take a dividend deduction of $19.375 per share for the approximate 2.1 million shares of Impark common stock distributed to the shareholders. In April 2000, the Trust sold Crossroads Center Mall for $80.3 million, of which approximately $78.3 million was applied against a loan payable to the purchaser and the assumption of the first mortgage debt on the mall. The Trust will recognize a gain on the sale of approximately $58 million, less an extraordinary loss on extinguishment of debt of approximately $2.4 million during the second quarter of 2000. The Trust amended the employment agreements of each of Messrs. Friedman and Schonberger and Ms. Zahner (each, an "Executive"). The amended agreements provide that after (i) the Impark spin-off and (ii) a sale or financing of Park Plaza mall (the "Park Plaza Financing"), each Executive may terminate his/her employment with the Trust on or after June 1, 2000, and then shall be entitled to receive a severance payment from First Union of $1,001,000 for Mr. Friedman and $630,000 for each of Mr. Schonberger and Ms. Zahner. The Impark spin-off and the Park Plaza Financing have occurred and the Trust anticipates that each Executive will terminate his/her employment agreement and receive the severance payment on or about June 1. The amended employment agreements also provide, among other things, that the options held by the Executives with exercise prices of $8.50 and $6.50 shall be canceled and that each Executive may invest in other businesses, provided that the Executive first offers such opportunity to the Trust. Finally, the amended employment agreements provide that (A) two of the Executives, Messrs. Friedman and Schonberger, will receive options to purchase shares of Impark and (B) the Trust will pay Ms. Zahner an additional cash payment of $110,000. Simultaneously with the execution of the amended employment agreements, the Trust entered into an asset management agreement with Radiant Partners, LLC (the "Management Company"), which is owned and controlled by the Executives. The agreement will become effective when the employment of each Executive with the Trust is terminated, after which time the Trust will become externally managed. The agreement will have a two year term, but the Trust will have the option of (i) extending the term for an additional year and (ii) terminating the agreement (A) for default, (B) in the event of a merger, consolidation or other similar business combination transaction, (C) in the event that the remaining equity of the Trust has a fair market value of less than $20,000,000 or (D) prior to June 1, 2000. There can be no assurance that the agreement will not be terminated before its effectiveness on June 1, 2000. During the effectiveness of the agreement, the Management Company will be responsible for conducting and overseeing the business and financial affairs of the Trust. As compensation for its services, the Management Company will receive an annual fee of $1,500,000 and an incentive fee equal to 10% of (A) the aggregate of all distributions, other than the Impark spin-off, in respect of a single common share of the Trust, first made after March 1, 2000, which exceeds $4.60 per share, multiplied by (B) the number of the Trust common shares in respect of which such distributions are made. If the Trust terminates the agreement after June 1, 2000, then the Management Company will also receive a termination fee of between $500,000 and $750,000, unless the agreement is terminated for default. Liquidity and Capital Resources Unrestricted and restricted cash decreased by approximately $38.5 million (from $57.8 million to $19.3 million) when comparing March 31, 2000 to the balance at December 31, 1999. The decrease in cash was primarily related to the Impark transaction. The Trust's net cash provided by operating activities of $2.4 million and net cash provided by investing activities of $4.9 million was more than offset by $43.4 million utilized for financing activities. Net cash provided by investing activities consisted of the receipt of $2.6 million of principal on a mortgage investment, proceeds from the sale of fixed assets of $.2 million and the excess of sales over purchases of U.S. Treasury bills of $4.4 million, which was partially offset by $2.4 million of improvements to properties. Net cash used in 3 4 financing activities included $36 million of payments related to the Impark spin-off, $7.3 million of cash dividends, $10.6 million to pay a deferred obligation relating to the purchase of the Huntington garage, a $3.1 million penalty to prepay the deferred obligation, a mortgage payment of $1 million and $.4 million of mortgage amortization. Cash provided by financing activities consisted of $16 million borrowed pursuant to a reverse repurchase agreement which was utilized to purchase a U.S. Treasury bill. The Trust invests its excess cash primarily in U.S. Treasury bills or money market funds investing in U.S. Treasury bills. The Trust declared a dividend of $6.6 million ($.155 per share) to Common Shareholders of beneficial interest and a dividend of $.7 million ($.525 per share) to Series A Cumulative Preferred Shareholders in the first quarter of 2000. Both dividends are payable April 28, 2000 to shareholders of record at the close of business on March 31, 2000. In addition, the Trust paid a dividend for 1999 of $6.6 million ($.155 per share) to common shareholders and $.7 million ($.525 per share) to preferred shareholders in the first quarter of 2000. During the first quarter of 2000, the Trust invested $2.4 million in capital and tenant improvements. The investment was made primarily for tenant improvements to continue to tenant the former retail center in Denver, Colorado, which has been converted into an office technology center. In addition, the Trust incurred capital and tenant improvements at the 55 Public Square office building in Cleveland, Ohio and to complete an anchor tenant store in Abilene, Texas. In January 2000, the Trust received $2.5 million from the Richmond Redevelopment and Housing Authority (the "Authority") to expand the Trust's garage located in Richmond, Virginia. If the Trust is unable to successfully complete the renovation or does not continue to provide an easement for a period of 84 years, all or a portion of the $2.5 million will have to be returned to the Authority. Construction began in April 2000. In April 2000, the Trust obtained a $42 million first mortgage loan secured by the Park Plaza Mall. The loan is non-recourse, has a 10 year term and a fixed interest rate of 8.69% payable on a 30 year amortization schedule. The Trust received proceeds, net of closing costs and escrow deposits, of $41.4 million. The loan requires monthly payments of approximately $397,000 for principal, interest and escrow deposits. Prepayment of the loan is permitted (after an initial lockout period of three years or two years from securitization), only with yield maintenance or defeasance, as defined in the loan agreement. The Trust purchased a $100 million U.S. Treasury bill with $35 million of the loan proceeds and an additional $65 million of borrowings utilizing a reverse repurchase agreement (the "Reverse Repo") with the U.S. Treasury bill as collateral. At May 1, 2000, the Trust owned $200 million in face value of U.S. Treasury bills and owed $130 million in Reverse Repos. The U.S. Treasury bills are classified as held to maturity. The interest rate on the Reverse Repos was 5.965% at May 1, 2000. The Reverse Repo outstanding at March 31, 2000 is included in notes payable. Results of Operations Net loss applicable to common shares before discontinued operations for the three months ended March 31, 2000 was $7.0 million as compared to a net loss before discontinued operations of $3.1 million for the three months ended March 31, 1999. Net loss before discontinued operations for 2000 included a capital loss of $.1 million compared to a capital gain of $.5 million in 1999. Capital loss for 2000 included the sale of certain fixed assets. The capital gain in 1999 was the result of the sale of a shopping center in February 1999. The net loss for 2000 included $3.1 million in extraordinary loss from early extinguishment of debt relating to the payoff of the Trust's deferred obligation of $10.6 million. Mortgage loan investment income declined for 2000 as compared to 1999, due to the collection of a note receivable during 2000. 4 5 Short term investment income increased significantly during 2000, as compared to 1999, due to the investment of proceeds received from the 1999 property sales. Property net operating income, which is defined as rent less operating expenses and real estate taxes, decreased for 2000 to $8.2 million from $19.1 million in 1999. The decrease was attributable to the sale of properties in 1999. Property net operating income, for properties in the portfolio for 2000 and 1999 increased by $.2 million. The increase was attributable to an increase in revenues of $.7 million, which was partially offset by an increase in operating expenses of $.3 million and in real estate taxes of $.2 million. Revenues increased by $.7 million, for properties in the portfolio in 2000 and 1999, primarily due to an increase in rental rates and occupancy at Two Rivers, an increase in rental rates at Park Plaza and an increase in occupancy at North Valley, which were partially offset by a decrease in occupancy at 55 Public Square. Operating expenses increased at Park Plaza and real estate taxes increased at all the Trust's remaining properties. Depreciation and amortization and mortgage loans interest expense decreased from 1999 to 2000 primarily due to the sale of properties and the repayment of debt in 1999. With respect to the remaining properties, depreciation and amortization expense increased slightly due to the effect of improvements to properties. Mortgage interest expense declined, with respect to the remaining properties, primarily due to the amortization of mortgage principal balances. Interest expense relating to bank loans and notes payable decreased due to the payoff of debt with the proceeds from property sales. General and administrative expenses increased primarily due to increases in stay bonuses, severance expense and professional fees. Included in general and administrative expenses for 2000 is approximately $1.7 million of stay bonuses and severance expense. In addition, sales and income improved substantially at the Company's manufacturing facility. Certain statements contained in this Form 10-Q that are forward-looking are based on current expectations that are subject to a number of uncertainties and risks, and actual results may differ materially. The uncertainties and risks include, but are not limited to, changes in market activity, changes in local real estate conditions and markets, actions by competitors, interest rate movements and general economic conditions. Further information about these matters can be found in the Trust's Annual Report filed with the SEC on Form 10K/A. 5 6 Item 3. Quantitative and Qualitative Disclosures of Market Risk Interest Rate Risk The Trust has entered into certain financing arrangements that require interest payments based on variable interest rates. As such, the combined financial statements are subject to changes in the market rate of interest. To reduce the exposure to changes in the market rate of interest, the Trust has entered into a rate guarantee contract (also known as an interest rate cap) for a portion of its floating rate financing arrangements. The Trust does not enter into rate guarantee contracts for trading purposes. The table below provides information about the Trust's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including the interest rate cap and debt obligations. Weighted average variable rates are based on the rates in effect at March 31, 2000. No assumptions have been made about the future interest rates.
AS OF MARCH 31, 2000 ------------------------------------------- EXPECTED MATURITY DATES (AMOUNTS IN MILLIONS) ------------------------------------------------ FAIR 2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE ------ ------ ------ ------ ------ ------------ ------ ------- LIABILITIES - ------------------------------------ Mortgage loans - - Fixed rate $1.3 $1.9 $46.4 $2.0 $31.1 $40.8 $123.5 $128.5 Average interest rate 10.7% 10.7% 10.7% 12.8% 11.5% 11.5% Variable rate (based on LIBOR) $33.0 $37.1 $70.1 $70.1 Weighted average interest rate 7.7% 9.1% Senior notes - - Fixed rate $12.5 $12.5 $12.3 Interest rate 8.875% Notes payable (Reverse Repo) - - Note payable $65.0 $.1 $65.1 $65.1 Interest rate 5.965% 7.5%
Interest Rate Derivatives The Trust owns two interest rate caps that protect it from increases in LIBOR. The interest rate caps have notional amounts of approximately $16 million and $21 million covering the variable rate loans maturing in 2002. Exchange Rate Risk The Trust and the Company do not have any foreign exchange rate risk as a result of the spin-off of Impark and the Canadian parking facilities in March 2000. 6 7 PART II - OTHER INFORMATION Item 1. Legal Proceedings. None Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: Exhibit (10)(s) Amendment to Employment Agreement executed March 27, 2000 with Daniel P. Friedman. Exhibit (10)(t) Amendment to Employment Agreement executed March 27, 2000 with David Schonberger. Exhibit (10)(u) Amendment to Employment Agreement executed March 27, 2000 with Anne Nelson Zahner. Exhibit (10)(v) Asset Management Agreement executed March 27, 2000 with Radiant Partners, LLC. Exhibit (10)(w) Second Amendment to Employment Agreement dated as of May 12, 2000 with Anne Zahner Exhibit (20) - Financial Statements Combined Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 (audited). Combined Statements of Operations for the Three Months ended March 31, 2000 (unaudited) and 1999 (unaudited). Combined Statements of Comprehensive Income for the Three Months ended March 31, 2000 (unaudited) and 1999 (unaudited). 7 8 Combined Statements of Cash Flows for the Three Months ended March 31, 2000 (unaudited) and 1999 (unaudited). Notes to Combined Financial Statements. Exhibit (27) - Financial Data Schedule Three months ended March 31, 2000 (unaudited). (b) Reports on Form 8-K: February 16, 2000 Item 5 - The Trust announced its intention to spin-off Impark to its shareholders. Item 7(b) - Proforma financial information Proforma combined balance sheet as of September 30, 1999 Proforma combined statement of operations for the nine months ended September 30, 1999 Proforma combined statement of operations for the twelve months ended December 31, 1998 Notes to combined proforma financial statements 8 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Trust has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. First Union Real Estate Equity and Mortgage Investments ------------------------------ (Trust) Date: May 15, 2000 By: /s/Daniel P. Friedman --------------------- Daniel P. Friedman President and Chief Executive Officer Date: May 15, 2000 By: /s/Brenda J. Mixson ------------------- Brenda J. Mixson, Chief Financial Officer 9 10 Index to Exhibits Exhibit (10)(s) Amendment to Employment Agreement executed March 27, 2000 with Daniel P. Friedman. Exhibit (10)(t) Amendment to Employment Agreement executed March 27, 2000 with David Schonberger. Exhibit (10)(u) Amendment to Employment Agreement executed March 27, 2000 with Anne Nelson Zahner. Exhibit (10)(v) Asset Management Agreement executed March 27, 2000 with Radiant Partners, LLC. Exhibit (10)(w) Second Amendment to Employment Agreement dated as of May 12, 2000 with Anne Zahner Exhibit (20) - Financial Statements Combined Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 (audited)....................... Combined Statements of Operations for the Three Months ended March 31, 2000 (unaudited) and 1999 (unaudited)............................................. Combined Statements of Comprehensive Income for the Three Months ended March 31, 2000 (unaudited) and 1999 (unaudited) Combined Statements of Cash Flows for the Three Months ended March 31, 2000 (unaudited) and 1999 (unaudited)........................................ Notes to Combined Financial Statements.................. Exhibit (27) -Financial Data Schedule Three months ended March 31, 2000 (unaudited) 10 EX-10.S 2 AMENDMENT TO EMPLOYMENT AGREEMENT 1 EXHIBIT (10)(s) AMENDMENT TO EMPLOYMENT AGREEMENT AMENDMENT executed March 27, 2000 as of November 30, 1999 (the "Amendment") to Employment Agreement entered into as of by and between DANIEL P. FRIEDMAN, an individual residing at 23 Prospect Avenue, Port Washington, New York 11050 ("Executive"), and FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS, an Ohio business trust with offices at 55 Public Square, Suite 1900, Cleveland, Ohio 44113 (the "Company"). IMPERIAL PARKING CORPORATION (formerly named First Union Canadian Holdings, Inc.), a Delaware corporation with offices at 601 West Cordova Street, Suite 300, Vancouver, British Columbia, Canada V6B1G1 ("Impark") is joining in this Agreement with respect to Section C hereof. (1) The Executive and the Company entered into an Employment Agreement dated November 2, 1998 (the "Original Agreement"); (2) Certain significant operational and business developments affecting the Company have occurred since the date the Original Agreement was executed, as a result of which the parties have concluded that an amendment to the Agreement would be in the best interests of both parties, and the parties have accordingly agreed to amend the Agreement in the manner and upon the considerations set forth in this Amendment; (3) Impark is executing this agreement, and shall be bound only by the terms of Section C hereof. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, the parties hereby agree as follows: A. CERTAIN DEFINED TERMS; CONTINUATION OF ORIGINAL EMPLOYMENT AGREEMENT (1) Amended Agreement The term "Amended Agreement" as used in this Amendment refers to the Original Agreement, as amended by this Amendment. (2) "Impark Spinoff" "Impark Spinoff" means (a) the reorganization of certain of the subsidiaries of the Company in order to position the Company's parking real estate assets under Impark and to repay certain indebtedness of Impark, (b) the settlement of certain debts owed by First Union Management, Inc. ("FUMI") to the Company by the transfer to the Company and its subsidiaries of the assets of FUMI relating to its business of leasing and managing parking facilities and (c) and distributing all of the shares of Impark not owned by its directors to the owners of the common shares of the Company (the "Common Shares"), (the date of such distribution being referred to as the "Impark Spinoff Date"). (3) Other Defined Terms Unless otherwise provided herein, capitalized terms herein shall have the meanings ascribed to them in the Original Agreement. As used herein: (4) Continued Effectiveness of Original Agreement Except as otherwise provided in this Amendment to the contrary, the terms and conditions of the Original Agreement as amended by this Amendment shall remain in effect. 2 (5) Inconsistent Provisions In any case in which the terms of this Amendment are inconsistent with the terms of the Original Agreement, the terms of this Amendment shall control. B. AMENDMENT OF CERTAIN SECTIONS OF THE ORIGINAL AGREEMENT THE FOLLOWING SECTIONS OF THE ORIGINAL AGREEMENT ARE HEREBY AMENDED AS SPECIFIED BELOW: (1) Section 4(c)(v) ("Share Option. Grant") is amended so that the three (3) paragraphs included within the subsection captioned "Vesting/Exercise" are deleted; and the following paragraph is inserted: "All of the Share Options vested as of November 2, 1998 (other than the Additional Options, which vested upon grant). All of the $6.50 Options, all of the $8.50 Options, and all of the Additional Options shall be exercisable in full as of December 1, 1999." (2) Section 4(c)(v) is further amended so that the paragraph in the subsection captioned "Exercise Price" is amended in its entirety to read as follows: "(v) (A) The option exercise price with regard to the 1,080,000 Share Options granted pursuant to this subsection (v) shall be as follows: 540,000 shall be exercisable at $6.50 per Common Share (the "$6.50 Options") and 540,000 shall be exercisable at $8.50 per Common Share (the "$8.50 Options"). (B) Additional Options to purchase 376,514 Common Shares having an initial exercise price of $4.00 were issued to the Executive on May 28, 1999, pursuant to the subsection of Section 4(c)(v) captioned "Additional Options." The Executive hereby irrevocably transfers his right to exercise Additional Options as to 31,250 shares to Anne Nelson Zahner and his right to exercise Additional Options as to 31,250 shares to David Schonberger; and the Company hereby agrees and consents to such transfers. (C) The exercise price of each Share Option (including the Additional Share Options) will be adjusted (but not below zero) (1) to increase on each anniversary of its grant by an amount equal to an increase of 10% per annum (compounded annually) and (2) to decrease from and after the date of its grant through the date of its exercise by the sum of all dividends or other distributions (including the value of non-cash dividends, including without limitation, share dividends, the Distributable Value of the Impark Spinoff and the Attributable Value of other spin-offs) declared per Common Share for the applicable year. As used herein, (1) the "Distributable Value of the Impark Spinoff" means the Initial Impark Option Price, and (2) "Attributable Value of other spinoffs" means the value ascribed to such spin-offs by the Company, or if not so ascribed, the fair market value of the assets so spun off. Notwithstanding the foregoing, -2- 3 the adjustment to the exercise price set forth in clause (C) (1) shall not commence until the eighteen (18) month anniversary of the commencement of the Employment Period; and (y) be applied ratably at the time(s) Executive exercises the Share Options (e.g. if Share Options are exercised on the 20 month anniversary of the commencement of the Employment Term, the exercise price in effect on that date would be increased by 1.667% (2/12 of 10%) minus any dividends or other distributions paid on or prior to the date of exercise (to the extent such dividends or other distributions were not previously deducted)." (3) Section 4(c)(v) is further amended so that, in the first paragraph in the subsection captioned "Option Exercise Term," (a) the period (.) at the end of the second sentence shall be replaced by a comma (,) and the following provision shall be added at the end thereof: "except that Additional Options (as defined in subsection 4(c)(vi) below) shall remain exercisable for eight (8) months following such event after which they shall expire." (b) a new sentence shall be added after the second sentence and shall read as follows: "Notwithstanding the foregoing, if the Company enters into an Asset Management Agreement with an entity of which the Executive, Anne Nelson Zahner and David Schonberger are the principal equity holders then the $8.50 Options and the $6.50 Options shall be terminated and shall no longer be exercisable if the Asset Management Agreement is executed and is not thereafter terminated pursuant to Article III, Section (a)(v) of the Management Agreement"; and (c) a period (.) shall replace the comma (,) after the first use of the word "expire" in the last sentence, the balance of the last sentence shall be deleted and the "(i)" in such sentence shall be deleted. (4) Section 5(a)(iv) (Good Reason) is amended to add the following lettered subparagraphs (G), and (H) before the words "provided, however:" "(G) The Board of Directors shall have adopted a resolution approving a complete liquidation or dissolution of the Company; or (H) there shall have occurred (1) the Impark Spinoff and (2) a sale or refinancing of the Park Plaza mall on terms acceptable to the Board of Directors; provided, however, that Good Reason pursuant to this Section 5(a)(iv) shall not occur unless and until Anne Nelson Zahner and David Schonberger shall have resigned for Good Reason or shall have been terminated under their respective Employment Agreements with the Company without Cause, after which such termination by reason of the Impark Spinoff and the sale or refinancing of the Park Plaza mall shall be deemed to have occurred for Good Reason; and provided -3- 4 further that if such Good Reason does occur, the Company, upon receipt of notice of resignation for such Good Reason, waives its right to cure. (5) Section 5(a)(iv) (Good Reason) is further amended by adding the following sentence at the end thereof. "Notwithstanding the foregoing, the Executive shall not be entitled to terminate his employment for Good Reason until June 1, 2000 unless such Good Reason is described in subparagraph (A) (2) of this subsection (iv). (6) Section 5(a)(vii) ("Change of Control") is amended to delete subsections (D) and (E) thereof. (7) Section 6(c)(i) is amended in its entirety to read as follows: "In the event the Company terminates Executive's employment for any reason other than Cause, death or Disability, or Executive terminates his employment for Good Reason (other than as set forth in Paragraph 6(c)(ii)), or in the event of a Change of Control, the Company shall pay to Executive and Executive shall be entitled to receive the sum total of: (A) the accrued but unpaid Annual Base Salary at the rate then in effect; (B) earned but unpaid incentive compensation and/or bonuses for completed performance periods; and (C) the sum of One Million One Thousand Dollars ($1,001,000.00). The aforesaid amounts shall be payable in cash immediately upon such termination. In addition, the Executive shall be entitled to continuation of Executive's participation in all benefit plans, programs or arrangements of the Company (except tax-qualified plans), including, without limitation, Medical Continuation, for a period of two years following such termination." (8) Section 8 ("Non-Compete") is hereby amended to add a new subsection (c) as follows: "(c) First Refusals. (i) Executive agrees that, if, prior to the earlier of (i) the termination of Executive's employment and (ii) the date on which a proposal to liquidate the Company is publicly announced, the Executive shall be offered the opportunity to invest in or acquire an interest in a business of any nature ("Investment Opportunity"), he shall first offer such Investment Opportunity to the Company. Such offer (the "Offer") shall be in writing and shall describe the Offer and the Investment Opportunity in sufficient detail, and provide to the Company substantially all of the written information furnished to him by the party ("Third Party") which made the Offer. The Company's representatives shall thereupon have fifteen (15) business days in which to consider and accept the Offer, and the Executive shall reasonably cooperate with the Company if it shall request further information concerning the Offer and the Executive is able to obtain such information from the Third Party. If at the end of such period the Company has not delivered to the Third Party its written acceptance of the Offer (or, having accepted the Offer, shall not proceed to -4- 5 a closing pursuant to the Offer within the time allowed in the Offer and/or shall fail to make such payments (including deposits) to the Third Party as would have been required from the Executive under the terms of the Offer), the Executive shall be free to accept the Offer and consummate the transactions contemplated thereby. The Executive's participation in the Investment Opportunity shall not be deemed a violation of any fiduciary, contractual or other obligation of the Executive to the Company, including under the provisions of Section 3(a) of the Original Agreement. Notwithstanding the foregoing, the time devoted by the Executive to any Investment Opportunity shall not substantially interfere with his performance of services as required under this Agreement." (ii) The obligation of the Executive to make the offers described in subsection (a) above shall terminate upon the date on which a proposal to liquidate or merge the Company is publicly announced. C. ADDITIONAL PROVISIONS ADDED BY THIS AMENDMENT (1) Impark Options (a) Issuance of Impark Options Impark, by its execution of this Agreement, covenants and agrees to issue to the Executive, on the day which is the 30th trading date following the first day on which shares of Impark Common Stock ("Impark Shares") are publicly traded, options to purchase shares of Impark common stock ("Impark Shares") which shall, immediately following the issuance thereof and after giving effect thereto, result in the Executive owning, immediately after the issuance thereof, options (the "Initial Impark Options") to purchase two and one half percent (2 1/2 %) of all of the outstanding common stock of Impark on a fully diluted basis (it being understood that the grant of Initial Impark Options are in lieu of and in full satisfaction of any right the Executive may have to receive options or any other consideration in connection with the Impark Spinoff pursuant to the Plan). As to the Initial Impark Options: (i) The Exercise Price per share of the Initial Impark Options shall be equal to the greater of (1) the last reported sales price of a share of Impark common stock on the day which is the thirtieth (30th) trading date following the first day on which Impark Shares are publicly traded, or (2) the average closing price of a share of Impark common stock for the ten (10) day trading period ending on the date which is the thirtieth (30th) trading date following the first day on which Impark Shares are publically traded, in either case, as reported on the principal trading market Impark Shares where quotes are readily available; (ii) The Impark Options shall be vested in full upon issuance, and shall be exercisable as follows: 25% on each of the first four anniversaries of the Impark Spinoff Date (each 12 month period ending on such anniversaries being an "Exercise Year"). The Impark Options shall be exercisable for a period which ends ten years after the anniversary of the Impark Spinoff Date ("Impark Option Term"); (iii) The Initial Impark Options shall be represented by an option certificate which shall contain anti-dilution provisions operable in the event of the issuance of stock splits or similar transactions. The exercise price of the Impark Options shall (A) increase on each -5- 6 monthly anniversary of grant at the rate of 10% per annum, compounded annually; and (B) decrease by the amount, per share, of dividends in respect of Impark common stock paid in cash and the fair market value of dividends paid in property other than cash. (b) Additional Impark Rights and Options. Impark, by its execution of this Agreement, agrees that it will grant to the Executive, at such time as rights to purchase common stock of Impark are offered to Impark's shareholders subsequent to the Impark Spinoff Date ("Rights Offering") is made: (i) The right (the "Impark Rights") to purchase such number of shares of Impark common stock as would, after giving effect to the exercise of such right, result in the Executive acquiring one percent (1%) of the number of shares issued pursuant to such Rights Offering (not exceeding, however, such number of shares as are issued for a gross aggregate price of $30,000,000) on substantially the same terms and conditions (and identical terms relating to price) as are contained in and are applicable to the Rights Offering; and (ii) additional options ("Additional Impark Options") to purchase, at an exercise price equal to the price per share at which the Rights Offering is made, a number of shares of Impark common stock which would result in the Executive acquiring upon exercise of one and one-half percent (1 1/2 %) of the number of shares issued pursuant to such Rights Offering (not exceeding, however, such number of shares as are issued for a gross aggregate price of $30,000,000). Such Additional Impark Options shall be vested in full upon issuance and shall be exercisable to the extent of 25% on each of the first four anniversaries of the Impark Spinoff Date (each 12 month period ending on such anniversaries being an "Exercise Year"); and shall remain exercisable for a period which ends ten years after the Impark Spinoff Date ("Additional Impark Option Term"); and (iii) notwithstanding the foregoing, the Executive's Impark Rights and his right to be issued Additional Impark Options shall expire upon his Termination Date; provided, however, that if his termination is by Impark without Cause, or by the Executive for Good Reason, or by reason of the Executive's death or disability, his Impark Rights and his right to receive Additional Impark Options shall expire six (6) months after his Termination Date. (c) Employment of Executive by Impark It shall be a condition of the Executive's right to exercise the Initial Impark Options and the Additional Impark Options and the Impark Rights that the Executive shall serve as an employee of Impark under the terms described in subsections (d) and (e) below, provided that Impark shall offer to employ and shall employ the Executive under such terms as of the Impark Spinoff Date. (d) Agreement to Serve as Officer of Impark The Executive agrees to serve, at the request of the Company, as a Vice Chairman of Impark following the Impark Spinoff Date, subject to (i) the Agreement of Impark to pay the Executive a base salary at the rate of $82,500 per annum (payable in monthly installments) during the period of his service; (ii) Executive receiving directors fees equivalent to the fees paid to the other outside directors of Impark and (iii) coverage of the Executive by a policy of Officers and Directors liability insurance (with customary exclusions) in form and scope reasonably satisfactory to the Executive in the amount of at least $15 million with respect to claims made against officers and directors of Impark. (e) Terms of Employment The Executive's employment with Impark shall be subject to the following terms: -6- 7 (1) Executive shall perform duties on a part-time basis as reasonably assigned by the Board of Directors of Impark consistent with his position as a senior executive thereof; it being understood that Executive's employment shall be on a part-time basis, and such duties are consistent with the Executive's other business obligations including as a member of the Management Company which is executing the Asset Management Agreement; (2) Executive may perform such services within Manhattan or, where his physical presence is not required, by telephone from any location. (3) Executive shall be reimbursed for all out-of-pocket expenses incurred in the performance of his obligations and documented in accordance with Impark's generally applicable reimbursement policies; (4) For purposes of this subsection C(1)(e): (x) "Cause" shall mean (A) Executive's conviction of a felony; (B) Executive's engaging in an embezzlement involving Impark; or (C) Executive's repeated and willful failure to carry out his employment obligations to Impark, which failure continues for more than 15 days after written notice to him of such failure which specifies the nature thereof; and (y) "Good Reason" means the failure of Impark to comply with the provisions of subsection (d) or Impark's material breach of the requirements of paragraphs (1) through (3) above, unless such failure is cured within 15 days after written notice to Impark specifying the nature of such failure, or any repetition of such failure which occurs after such cure; and (5) (i) If Impark terminates the Executive for Cause all of the unexercised Impark Options and Additional Impark Options which have not been exercised shall be terminated as of the Termination Date, and he shall not be entitled to any further salary payments accruing after the Termination Date. (ii) If Impark terminates the Executive without Cause or Executive terminates for Good Reason, then (A) he shall have the right to payment of his base salary from Impark through the Termination Date and no right to further payments from Impark relating to any period after the Termination Date, and (B) all of the Impark Options and Additional Impark Options shall become immediately exercisable, the Impark Call Option set forth in subsection (6) below shall not apply, and all of the Impark Options and Additional Impark Options shall expire to the extent not exercised on or before the last day of the six-month period following the Termination Date. (iii) If the Executive terminates his employment voluntarily without Good Reason, then (A) he shall have the right to payment of his base salary through the Termination Date and no right to further payments from Impark relating to any period after the Termination Date, (B) all of the Impark Options and Additional Impark Options, to the extent not then exercisable, shall continue to become exercisable in accordance with the schedules set forth in (C)(1)(a)(ii) and (C)(1)(b)(ii), respectively, and shall expire thirty (30) days after the date on which such options shall become exercisable, unless exercised prior thereto; (C) the Impark Options and Additional Impark Options which were not exercisable on the Termination Date shall become subject to the Impark Call Option; and (D) the Impark Options and Additional Impark Options which were exercisable on the Termination Date shall not be subject to the Impark Call Option, shall continue to be exercisable and shall expire to the extent not exercised on or before the last day of the thirty (30) day period following the Termination Date. -7- 8 (iv) Upon the termination of Executive's employment by reason of death or disability, the Executive's estate may exercise all Impark Options and Additional Impark Options which were exercisable on the Termination Date plus a Pro Rata portion of the Impark Options and Additional Impark Options which would next have become exercisable had such death or disability not occurred. As used herein, "Pro Rata" means an amount of Impark Options and Additional Impark Options equal to (x) the percentage equal to (i) the number of days from the commencement of the Exercise Year (as defined in subsections (a)(ii) (as to Impark Options) and (b)(ii) (as to Additional Impark Options) of this Section C) in which such termination occurs through the Termination Date divided by (ii) 365; multiplied in each case by (y) the number of Impark Options and Additional Impark Options, respectively, which would otherwise have become exercisable at the end of the Exercise Year in which such Termination occurs. Such exercise may be effected until the earliest of one year following the Executive's Termination Date or the end of the Option Term or Additional Impark Option Terms, after which time any unexercised Impark Options or Additional Impark Options shall expire. (v) For purposes of this paragraph, "Termination Date" means (a) the Executive's last day of employment on or following the date upon which written notice of termination is delivered to him by Impark, as the same shall be stated in such notice; (b) the Executive's last day of employment on or following the date upon which the Executive delivers written notice of resignation to Impark (including a resignation for Good Reason); or (c) the date of the Executive's death or disability. (6) Impark Call Option. If any Impark Options and Additional Impark Options are subject to an Impark Call Option pursuant to subsection (5) above (the Impark Call Option) then Impark shall have the right to require the Executive to transfer such Options (the "Subject Options") to Impark at any time after his Termination Date for a price equal to the "Exercise Spread" (as defined herein). If such Exercise Spread is zero or less, Impark may purchase the Subject Options for no consideration. Impark shall provide written notice to Executive that it is exercising the Call Option and the date on which such notice is deemed to have been given under the terms of this Agreement shall be deemed the "Valuation Date". The "Exercise Spread" shall be (i) the difference between (a) the exercise price of a Subject Option and (b) the "Closing Price" of a share of Impark common stock ("Common Stock") on the Valuation Date. The "Closing Price" means (i) if the Common Stock is listed or admitted to trading on the New York Stock Exchange (the "NYSE"), the American Stock Exchange ("AMEX") any national securities exchange or the Nasdaq Stock Market ("Nasdaq"), the closing price on the Valuation Date, or if no such sale takes place on such day, the average of the closing bid and asked prices on such day; (ii) if the Common Stock is not listed or admitted to trading on the NYSE, the AMEX, any national securities exchange or the Nasdaq, the last reported sale price on the Valuation Date or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by Impark; (iii) if the Common Stock is not listed or admitted trading on the NYSE, the AMEX, any national securities exchange or the Nasdaq and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on the Valuation Date, as reported by a reliable quotation source designated by Impark, or if there shall be no bid and asked prices on the Valuation Date, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than five (5) days prior to the date in question) for which prices have been so reported; provided, however, that if there are no bid and asked prices reported during the five (5) days prior to the date in questions, the Closing Price of the Common Stock shall be determined by the independent trustees of Impark acting in good faith on the basis of such quotations and other information as they consider, in their reasonable judgment, appropriate. -8- 9 D. GENERAL PROVISIONS (1) Notices. All notices or other communications required or permitted hereunder shall be made in writing and shall be deemed to have been duly given if delivered by hand or delivered by a recognized delivery service or mailed, postage prepaid, by express, certified or registered mail, return receipt requested, and addressed to (1) to the Company and Impark at their respective addresses as set forth above and (2) to the Executive at his address as set forth in the Company records and 23 Prospect Avenue, Port Washington, New York 11050 (or to such other address as shall have been previously provided in accordance with this Section 7). In addition, copies of any notice to the Executive shall be delivered to Herrick, Feinstein LLP, 2 Park Avenue, 21st Floor, New York, New York 10016, Attention: Harvey S. Feuerstein, Esq. (2) Governing Law. This Amendment will be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws thereunder. (3) Severability. Whenever possible, each provision and term of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or term of this Amendment shall be held to be prohibited by or invalid under such applicable law, then, such provision or term shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or affecting in any manner whatsoever the remainder of such provisions or term or the remaining provisions or terms of this Amendment. (4) Counterparts. This Amendment may be executed in separate counterparts, each of which is deemed to be an original and both of which taken together shall constitute one and the same agreement. (5) Headings. The headings of the Paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute a part hereof and shall not affect the construction or interpretation of this Agreement. (6) Entire Agreement. This Amendment and the Original Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and thereof, and supersede all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof. (7) Waiver and Modification. No amendment, modification, waiver, termination or cancellation of this Amendment shall be binding or effective for any purpose unless it is made in a writing signed by the party against whom enforcement of such amendment, modification, -9- 10 waiver, termination or cancellation is sought. No course of dealing between or among the parties to this Amendment shall be deemed to affect or to modify, amend or discharge any provision or term of this Amendment. No delay on the part of the Company or Executive in the exercise of any of their respective rights or remedies shall operate as a waiver thereof, and no single or partial exercise by the Company or Executive of any such right or remedy shall preclude other or further exercise thereof. A waiver of right or remedy on any one occasion shall not be construed as a bar to or waiver of any such right or remedy on any other occasion. The respective rights and obligations of the parties hereunder shall survive the Executive's termination of employment and termination of this Amendment to the extent necessary for the intended preservation of such rights and obligations. (8) Exculpation. Notwithstanding anything contained herein to the contrary, this Agreement is made and executed on behalf of the Company by its officer(s) on behalf of the trustees thereof, and none of the trustees or any additional or successor trustee hereafter appointed, or any beneficiary, officer, employee or agent of the Company shall have any liability in his personal or individual capacity, but instead, Executive shall look solely to the property and assets of the Company for satisfaction of claims of any nature arising from or in connection with this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. Executive: First Union Real Estate Equity And Mortgage Investments DANIEL P. FRIEDMAN /s/ Daniel P. Friedman By: /s/ WILLIAM ACKMAN ---------------------- ------------------------- Name: WILLAM ACKMAN Title: CHAIRMAN IMPERIAL PARKING CORPORATION (formerly known as First Union Canadian Holdings, Inc.) (as to Section C only) By: /s/ CHARLES HUNTZINGER ------------------------- Name: CHARLES HUNTZINGER Title PRESIDENT
-10- EX-10.T 3 AMENDMENT TO EMPLOYMENT AGREEMENT 1 EXHIBIT (10)(t) AMENDMENT TO EMPLOYMENT AGREEMENT AMENDMENT executed March 27, 2000 as of November 30, 1999 (the "Amendment") to Employment Agreement entered into as of by and between DAVID SCHONBERGER, an individual residing at 90 Paulding Drive, Chappaqua, New York 10514 ("Executive"), and FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS, an Ohio business trust with offices at 55 Public Square, Suite 1900, Cleveland, Ohio 44113 (the "Company"). IMPERIAL PARKING CORPORATION (formerly named First Union Canadian Holdings, Inc.), a Delaware corporation with offices at 601 West Cordova Street, Suite 300, Vancouver, British Columbia, Canada V6B1G1 ("Impark") is joining in this Agreement with respect to Section C hereof. (1) The Executive and the Company entered into an Employment Agreement dated November 2, 1998 (the "Original Agreement"); (2) Certain significant operational and business developments affecting the Company have occurred since the date the Original Agreement was executed, as a result of which the parties have concluded that an amendment to the Agreement would be in the best interests of both parties, and the parties have accordingly agreed to amend the Agreement in the manner and upon the considerations set forth in this Amendment; (3) Impark is executing this agreement, and shall be bound only by the terms of Section C hereof. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, the parties hereby agree as follows: A. CERTAIN DEFINED TERMS; CONTINUATION OF ORIGINAL EMPLOYMENT AGREEMENT (1) Amended Agreement The term "Amended Agreement" as used in this Amendment refers to the Original Agreement, as amended by this Amendment. (2) "Impark Spinoff" "Impark Spinoff" means (a) the reorganization of certain of the subsidiaries of the Company in order to position the Company's parking real estate assets under Impark and to repay certain indebtedness of Impark, (b) the settlement of certain debts owed by First Union Management, Inc. ("FUMI") to the Company by the transfer to the Company and its subsidiaries of the assets of FUMI relating to its business of leasing and managing parking facilities and (c) and distributing all of the shares of Impark not owned by its directors to the owners of the common shares of the Company (the "Common Shares"), (the date of such distribution being referred to as the "Impark Spinoff Date"). (3) Other Defined Terms Unless otherwise provided herein, capitalized terms herein shall have the meanings ascribed to them in the Original Agreement. As used herein: (4) Continued Effectiveness of Original Agreement Except as otherwise provided in this Amendment to the contrary, the terms and conditions of the Original Agreement as amended by this Amendment shall remain in effect. (5) Inconsistent Provisions In any case in which the terms of this Amendment are inconsistent with the terms of the Original Agreement, the terms of this Amendment shall control. 2 B. AMENDMENT OF CERTAIN SECTIONS OF THE ORIGINAL AGREEMENT THE FOLLOWING SECTIONS OF THE ORIGINAL AGREEMENT ARE HEREBY AMENDED AS SPECIFIED BELOW: (1) Section 4 (a) ("Salary") of the Original Agreement is amended to be Section 4(a)(i) and a new Section 4(a)(ii) is added to read as follows: "(ii) Bonus The Executive shall be entitled to a bonus, on or before December 29, 1999, of $135,000, in cash. (2) Section 4(c)(v) ("Share Option. Grant") is amended so that the three (3) paragraphs included within the subsection captioned "Vesting/Exercise" are deleted; and the following paragraph is inserted: "All of the Share Options vested as of November 2, 1998 (other than the Additional Options, which vested upon grant). All of the $6.50 Options, all of the $8.50 Options, and all of the Additional Options shall be exercisable in full as of December 1, 1999." (3) Section 4(c)(v) is further amended so that the paragraph in the subsection captioned "Exercise Price" is amended in its entirety to read as follows: "(v) (A) The option exercise price with regard to the 360,000 Share Options granted pursuant to this subsection (v) shall be as follows: 180,000 shall be exercisable at $6.50 per Common Share (the "$6.50 Options") and 180,000 shall be exercisable at $8.50 per Common Share (the "$8.50 Options"). (B) Additional Share Options to purchase 125,504 Common Shares having an initial exercise price of $4.00 were issued to the Executive on May 28, 1999, pursuant to the subsection of Section 4(c)(vi) captioned "Additional Share Options." In addition, Additional Options to purchase 31,250 shares have been transferred to the Executive by Daniel Friedman contemporaneously herewith (the "Transferred Options"), and the Company has agreed and consented to such transfer. The Transferred Options shall be exercisable in full as of December 1, 1999. The term "Additional Share Options" shall be deemed to include such Transferred Options. (C) The exercise price of each Share Option (including the Additional Share Options) will be adjusted (but not below zero) (1) to increase on each anniversary of its grant by an amount equal to an increase of 10% per annum (compounded annually) and (2) to decrease from and after the date of its grant through the date of its exercise by the sum of all dividends or other distributions (including the value of non-cash dividends, including without limitation, share dividends, the Distributable Value of the Impark Spinoff and the Attributable Value of other spin-offs) declared per Common Share for the applicable year. As used herein, (1) the "Distributable Value of the Impark Spinoff" means the Initial Impark Option Price, and (2) "Attributable Value of other spinoffs" means the value ascribed to such spin-offs by the Company, or if not so ascribed, the fair market value of the assets so spun off. Notwithstanding the foregoing, the adjustment to the exercise price set forth in clause (C) (1) shall not -2- 3 commence until the eighteen (18) month anniversary of the commencement of the Employment Period; and (y) be applied ratably at the time(s) Executive exercises the Share Options (e.g. if Share Options are exercised on the 20 month anniversary of the commencement of the Employment Term, the exercise price in effect on that date would be increased by 1.667% (2/12 of 10%) minus any dividends or other distributions paid on or prior to the date of exercise (to the extent such dividends or other distributions were not previously deducted)." (4) Section 4(c)(v) is further amended so that, in the first paragraph in the subsection captioned "Option Exercise Term," (a) the period (.) at the end of the second sentence shall be replaced by a comma (,) and the following provision shall be added at the end thereof: "except that Additional Options (as defined in subsection 4(c)(vi) below) shall remain exercisable for eight (8) months following such event after which they shall expire." (b) a new sentence shall be added after the second sentence and shall read as follows: "Notwithstanding the foregoing, if the Company enters into an Asset Management Agreement with an entity of which the Executive, Anne Nelson Zahner and Daniel P. Friedman are the principal equity holders then the $8.50 Options and the $6.50 Options shall be terminated and shall no longer be exercisable if the Asset Management Agreement is executed and is not thereafter terminated pursuant to Article III, Section (a)(v) of the Management Agreement"; and (c) a period (.) shall replace the comma (,) after the first use of the word "expire" in the last sentence, the balance of the last sentence shall be deleted and the "(i)" in such sentence shall be deleted. (5) Section 5(a)(iv) (Good Reason) is amended to add the following lettered subparagraphs (G), and (H) before the words "provided, however:" "(G) The Board of Directors shall have adopted a resolution approving a complete liquidation or dissolution of the Company; or (H) there shall have occurred (1) the Impark Spinoff and (2) a sale or refinancing of the Park Plaza mall on terms acceptable to the Board of Directors; provided, however, that Good Reason pursuant to this Section 5(a)(iv)(H) shall not occur unless and until Anne Nelson Zahner and Daniel Friedman shall have resigned for Good Reason or shall have been terminated under their respective Employment Agreements with the Company without Cause, after which such termination by reason of the Impark Spinoff and the sale or refinancing of the Park Plaza mall shall be deemed to have occurred for Good Reason; and provided further that if such Good Reason does occur, the Company, upon receipt of notice of resignation for such Good Reason, waives its right to cure. (6) Section 5(a)(iv) (Good Reason) is further amended by adding the following sentence at the end thereof. -3- 4 "Notwithstanding the foregoing, the Executive shall not be entitled to terminate his employment for Good Reason until June 1, 2000 unless such Good Reason is described in subparagraph (A) (2) of this subsection (iv). (7) Section 5(a)(vii) ("Change of Control") is amended to delete subsections (D) and (E) thereof. (8) Section 6(c)(i) is amended in its entirety to read as follows: "In the event the Company terminates Executive's employment for any reason other than Cause, death or Disability, or Executive terminates his employment for Good Reason (other than as set forth in Paragraph 6(c)(ii)), or in the event of a Change of Control, the Company shall pay to Executive and Executive shall be entitled to receive the sum total of: (A) the accrued but unpaid Annual Base Salary at the rate then in effect; (B) earned but unpaid incentive compensation and/or bonuses for completed performance periods; and (C) the sum of Six Hundred Thirty Thousand Dollars ($630,000). The aforesaid amounts shall be payable in cash immediately upon such termination. In addition, the Executive shall be entitled to continuation of Executive's participation in all benefit plans, programs or arrangements of the Company (except tax-qualified plans), including, without limitation, Medical Continuation, for a period of two years following such termination." (9) Section 8 ("Non-Compete") is hereby amended to add a new subsection (c) as follows: "(c) First Refusals. (i) Executive agrees that, if, prior to the earlier of (i) the termination of Executive's employment and (ii) the date on which a proposal to liquidate the Company is publicly announced, the Executive shall be offered the opportunity to invest in or acquire an interest in a business of any nature ("Investment Opportunity"), he shall first offer such Investment Opportunity to the Company. Such offer (the "Offer") shall be in writing and shall describe the Offer and the Investment Opportunity in sufficient detail, and provide to the Company substantially all of the written information furnished to him by the party ("Third Party") which made the Offer. The Company's representatives shall thereupon have fifteen (15) business days in which to consider and accept the Offer, and the Executive shall reasonably cooperate with the Company if it shall request further information concerning the Offer and the Executive is able to obtain such information from the Third Party. If at the end of such period the Company has not delivered to the Third Party its written acceptance of the Offer (or, having accepted the Offer, shall not proceed to a closing pursuant to the Offer within the time allowed in the Offer and/or shall fail to make such payments (including deposits) to the Third Party as would have been required from the Executive under the terms of the Offer), the Executive shall be free to accept the Offer and consummate the transactions contemplated thereby. The Executive's participation in the Investment Opportunity shall not be deemed a violation of any fiduciary, contractual or other obligation of the Executive to the Company, including under the provisions of Section 3(a) of the Original Agreement. Notwithstanding the foregoing, the time devoted by the Executive to any Investment Opportunity shall not substantially interfere with his performance of services as required under this Agreement." -4- 5 (ii) The obligation of the Executive to make the offers described in subsection (a) above shall terminate upon the date on which a proposal to liquidate or merge the Company is publicly announced. C. ADDITIONAL PROVISIONS ADDED BY THIS AMENDMENT (1) Impark Options Impark, by its execution of this Agreement, covenants and agrees to issue to the Executive, on the day which is the 30th trading date following the first day on which shares of Impark Common Stock ("Impark Shares") are publicly traded, options to purchase shares of Impark common stock ("Impark Shares") which shall, immediately following the issuance thereof and after giving effect thereto, result in the Executive owning, immediately after the issuance thereof, options (the "Initial Impark Options") to purchase one and one quarter percent (1.25%) of all of the outstanding common stock of Impark on a fully diluted basis (it being understood that the grant of Initial Impark Options are in lieu of and in full satisfaction of any right the Executive may have to receive options or any other consideration in connection with the Impark Spinoff pursuant to the Plan). As to the Initial Impark Options: (i) The Exercise Price per share of the Initial Impark Options shall be equal to the greater of (1) the last reported sales price of a share of Impark common stock on the day which is the thirtieth (30th) trading date following the first day on which Impark Shares are publicly traded, or (2) the average closing price of a share of Impark common stock for the ten (10) day trading period ending on the date which is the thirtieth (30th) trading date following the first day on which Impark Shares are publically traded, in either case, as reported on the principal trading market Impark Shares where quotes are readily available; (ii) The Impark Options shall be vested in full upon issuance, and shall be exercisable as follows: 25% on each of the first four anniversaries of the Impark Spinoff Date (each 12 month period ending on such anniversaries being an "Exercise Year"). The Impark Options shall be exercisable for a period which ends ten years after the anniversary of the Impark Spinoff Date ("Impark Option Term"); (a) Issuance of Impark Options (iii) The Initial Impark Options shall be represented by an option certificate which shall contain anti-dilution provisions operable in the event of the issuance of stock splits or similar transactions. The exercise price of the Impark Options shall (A) increase on each monthly anniversary of grant at the rate of 10% per annum, compounded annually; and (B) decrease by the amount, per share, of dividends in respect of Impark common stock paid in cash and the fair market value of dividends paid in property other than cash. (b) Additional Impark Rights and Options. Impark, by its execution of this Agreement, agrees that it will grant to the Executive, at such time as rights to purchase common stock of Impark are offered to Impark's shareholders subsequent to the Impark Spinoff Date ("Rights Offering") is made: (i) The right (the "Impark Rights") to purchase such number of shares of Impark common stock as would, after giving effect to the exercise of such right, result in the Executive acquiring 0.417% of the number of shares issued pursuant to such Rights Offering (not exceeding, however, such number of shares as are issued for a gross aggregate price of $30,000,000) on substantially the same terms and conditions (and identical terms relating to price) as are contained in and are applicable to the Rights Offering; and -5- 6 (ii) additional options ("Additional Impark Options") to purchase, at an exercise price equal to the price per share at which the Rights Offering is made, a number of shares of Impark common stock which would result in the Executive acquiring upon exercise 0.833% of the number of shares issued pursuant to such Rights Offering (not exceeding, however, such number of shares as are issued for a gross aggregate price of $30,000,000). Such Additional Impark Options shall be vested in full upon issuance and shall be exercisable to the extent of 25% on each of the first four anniversaries of the Impark Spinoff Date (each 12 month period ending on such anniversaries being an "Exercise Year"); and shall remain exercisable for a period which ends ten years after the Impark Spinoff Date ("Additional Impark Option Term"); and (iii) notwithstanding the foregoing, the Executive's Impark Rights and his right to be issued Additional Impark Options shall expire upon his Termination Date; provided, however, that if his termination is by Impark without Cause, or by the Executive for Good Reason, or by reason of the Executive's death or disability, his Impark Rights and his right to receive Additional Impark Options shall expire six (6) months after his Termination Date. (c) Employment of Executive by Impark It shall be a condition of the Executive's right to exercise the Initial Impark Options and the Additional Impark Options and the Impark Rights that the Executive shall serve as an employee of Impark under the terms described in subsections (d) and (e) below, provided that Impark shall offer to employ and shall employ the Executive under such terms as of the Impark Spinoff Date. (d) Agreement to Serve as Officer of Impark The Executive agrees to serve, at the request of the Company, as a Vice President of Impark following the Impark Spinoff Date, subject to (i) the Agreement of Impark to pay the Executive a base salary at the rate of $112,000 per annum (payable in monthly installments) during the period of his service; and (ii) coverage of the Executive by a policy of Officers and Directors liability insurance (with customary exclusions) in form and scope reasonably satisfactory to the Executive in the amount of at least $15 million with respect to claims made against officers and directors of Impark. (e) Terms of Employment The Executive's employment with Impark shall be subject to the following terms: (1) Executive shall perform duties on a part-time basis as reasonably assigned by the President of Impark consistent with his position as a senior executive thereof; it being understood that Executive's employment shall be on a part-time basis, and such duties are consistent with the Executive's other business obligations including as a member of the Management Company which is executing the Asset Management Agreement; (2) Executive may perform such services within Manhattan or, where his physical presence is not required, by telephone from any location. (3) Executive shall be reimbursed for all out-of-pocket expenses incurred in the performance of his obligations and documented in accordance with Impark's generally applicable reimbursement policies; (4) For purposes of this subsection C(1)(e): (x) "Cause" shall mean (A) Executive's conviction of a felony; (B) Executive's engaging in an embezzlement involving Impark; or (C) Executive's repeated and willful failure to carry out his employment obligations to Impark, which failure continues for more than 15 days after written notice to him of such failure which specifies the nature thereof; and (y) "Good Reason" means the failure of Impark to comply with the provisions of subsection (d) or Impark's material breach of the requirements of paragraphs (1) through (3) above, unless such failure is cured within 15 days after written notice to Impark -6- 7 specifying the nature of such failure, or any repetition of such failure which occurs after such cure; and (5) (i) If Impark terminates the Executive for Cause all of the unexercised Impark Options and Additional Impark Options which have not been exercised shall be terminated as of the Termination Date, and he shall not be entitled to any further salary payments accruing after the Termination Date. (ii) If Impark terminates the Executive without Cause or Executive terminates for Good Reason, then (A) he shall have the right to payment of his base salary from Impark through the Termination Date and no right to further payments from Impark relating to any period after the Termination Date, and (B) all of the Impark Options and Additional Impark Options shall become immediately exercisable, the Impark Call Option set forth in subsection (6) below shall not apply, and all of the Impark Options and Additional Impark Options shall expire to the extent not exercised on or before the last day of the six-month period following the Termination Date. (iii) If the Executive terminates his employment voluntarily without Good Reason, then (A) he shall have the right to payment of his base salary through the Termination Date and no right to further payments from Impark relating to any period after the Termination Date, (B) all of the Impark Options and Additional Impark Options, to the extent not then exercisable, shall continue to become exercisable in accordance with the schedules set forth in (C)(1)(a)(ii) and (C)(1)(b)(ii), respectively, and shall expire thirty (30) days after the date on which such options shall become exercisable, unless exercised prior thereto; (C) the Impark Options and Additional Impark Options which were not exercisable on the Termination Date shall become subject to the Impark Call Option; and (D) the Impark Options and Additional Impark Options which were exercisable on the Termination Date shall not be subject to the Impark Call Option, shall continue to be exercisable and shall expire to the extent not exercised on or before the last day of the thirty (30) day period following the Termination Date. (iv) Upon the termination of Executive's employment by reason of death or disability, the Executive's estate may exercise all Impark Options and Additional Impark Options which were exercisable on the Termination Date plus a Pro Rata portion of the Impark Options and Additional Impark Options which would next have become exercisable had such death or disability not occurred. As used herein, "Pro Rata" means an amount of Impark Options and Additional Impark Options equal to (x) the percentage equal to (i) the number of days from the commencement of the Exercise Year (as defined in subsections (a)(ii) (as to Impark Options) and (b)(ii) (as to Additional Impark Options) of this Section C) in which such termination occurs, through the Termination Date divided by (ii) 365; multiplied in each case by (y) the number of Impark Options and Additional Impark Options, respectively, which would otherwise have become exercisable at the end of the Exercise Year in which such Termination occurs. Such exercise may be effected until the earliest of one year following the Executive's Termination Date or the end of the Option Term or Additional Impark Option Terms, after which time any unexercised Impark Options or Additional Impark Options shall expire. (v) For purposes of this paragraph, "Termination Date" means (a) the Executive's last day of employment on or following the date upon which written notice of termination is delivered to him by Impark, as the same shall be stated in such notice; (b) the Executive's last day of employment on or following the date upon which the Executive delivers written notice of resignation to Impark (including a resignation for Good Reason); or (c) the date of the Executive's death or disability. (6) Impark Call Option. If any Impark Options and Additional Impark Options are subject to an Impark Call Option pursuant to subsection (5) above (the Impark Call Option) then Impark shall have the right to require the Executive to transfer such Options (the "Subject Options") to Impark at any time after his Termination Date for a price equal to the "Exercise -7- 8 Spread" (as defined herein). If such Exercise Spread is zero or less, Impark may purchase the Subject Options for no consideration. Impark shall provide written notice to Executive that it is exercising the Call Option and the date on which such notice is deemed to have been given under the terms of this Agreement shall be deemed the "Valuation Date". The "Exercise Spread" shall be (i) the difference between (a) the exercise price of a Subject Option and (b) the "Closing Price" of a share of Impark common stock ("Common Stock") on the Valuation Date. The "Closing Price" means (i) if the Common Stock is listed or admitted to trading on the New York Stock Exchange (the "NYSE"), the American Stock Exchange ("AMEX") any national securities exchange or the Nasdaq Stock Market ("Nasdaq"), the closing price on the Valuation Date, or if no such sale takes place on such day, the average of the closing bid and asked prices on such day; (ii) if the Common Stock is not listed or admitted to trading on the NYSE, the AMEX, any national securities exchange or the Nasdaq, the last reported sale price on the Valuation Date or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by Impark; (iii) if the Common Stock is not listed or admitted trading on the NYSE, the AMEX, any national securities exchange or the Nasdaq and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on the Valuation Date, as reported by a reliable quotation source designated by Impark, or if there shall be no bid and asked prices on the Valuation Date, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than five (5) days prior to the date in question) for which prices have been so reported; provided, however, that if there are no bid and asked prices reported during the five (5) days prior to the date in questions, the Closing Price of the Common Stock shall be determined by the independent trustees of Impark acting in good faith on the basis of such quotations and other information as they consider, in their reasonable judgment, appropriate. D. GENERAL PROVISIONS (1) Notices. All notices or other communications required or permitted hereunder shall be made in writing and shall be deemed to have been duly given if delivered by hand or delivered by a recognized delivery service or mailed, postage prepaid, by express, certified or registered mail, return receipt requested, and addressed to (1) to the Company and Impark at their respective addresses as set forth above and (2) to the Executive at his address as set forth in the Company records and 90 Paulding Drive, Chappaqua, New York 10514 (or to such other address as shall have been previously provided in accordance with this Section 7). In addition, copies of any notice to the Executive shall be delivered to Herrick, Feinstein LLP, 2 Park Avenue, 21st Floor, New York, New York 10016, Attention: Harvey S. Feuerstein, Esq. (2) Governing Law. This Amendment will be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws thereunder. (3) Severability. Whenever possible, each provision and term of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or term of this Amendment shall be held to be prohibited by or invalid under such applicable law, then, such provision or term shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or affecting in any manner whatsoever the remainder of such provisions or term or the remaining provisions or terms of this Amendment. -8- 9 (4) Counterparts. This Amendment may be executed in separate counterparts, each of which is deemed to be an original and both of which taken together shall constitute one and the same agreement. (5) Headings. The headings of the Paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute a part hereof and shall not affect the construction or interpretation of this Agreement. (6) Entire Agreement. This Amendment and the Original Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and thereof, and supersede all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof. (7) Waiver and Modification. No amendment, modification, waiver, termination or cancellation of this Amendment shall be binding or effective for any purpose unless it is made in a writing signed by the party against whom enforcement of such amendment, modification, waiver, termination or cancellation is sought. No course of dealing between or among the parties to this Amendment shall be deemed to affect or to modify, amend or discharge any provision or term of this Amendment. No delay on the part of the Company or Executive in the exercise of any of their respective rights or remedies shall operate as a waiver thereof, and no single or partial exercise by the Company or Executive of any such right or remedy shall preclude other or further exercise thereof. A waiver of right or remedy on any one occasion shall not be construed as a bar to or waiver of any such right or remedy on any other occasion. The respective rights and obligations of the parties hereunder shall survive the Executive's termination of employment and termination of this Amendment to the extent necessary for the intended preservation of such rights and obligations. (8) Exculpation. Notwithstanding anything contained herein to the contrary, this Agreement is made and executed on behalf of the Company by its officer(s) on behalf of the trustees thereof, and none of the trustees or any additional or successor trustee hereafter appointed, or any beneficiary, officer, employee or agent of the Company shall have any liability in his personal or individual capacity, but instead, Executive shall look solely to the property and assets of the Company for satisfaction of claims of any nature arising from or in connection with this Agreement. -9- 10 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. Executive: First Union Real Estate Equity And Mortgage --------- Investments DAVID SCHONBERGER /s/ DAVID SCHONBERGER By: /s/ WILLIAM ACKMAN --------------------- ----------------------------- Name: WILLIAM ACKMAN Title: CHAIRMAN IMPERIAL PARKING CORPORATION (formerly known as First Union Canadian Holdings, Inc.) (as to Section C only) By: /s/ CHARLES HUNTZINGER ------------------------- Name: CHARLES HUNTZINGER Title PRESIDENT
-10- EX-10.U 4 AMENDMENT TO EMPLOYMENT AGREEMENT 1 EXHIBIT (10)(u) AMENDMENT TO EMPLOYMENT AGREEMENT AMENDMENT executed March 27, 2000 as of November 30, 1999 (the "Amendment") to Employment Agreement entered into as of by and between ANNE NELSON ZAHNER, an individual residing at 15 Woodlawn Avenue, New Rochelle, New York 10804 ("Executive"), and FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS, an Ohio business trust with offices at 55 Public Square, Suite 1900, Cleveland, Ohio 44113 (the "Company"). IMPERIAL PARKING CORPORATION (formerly named First Union Canadian Holdings, Inc.), a Delaware corporation with offices at 601 West Cordova Street, Suite 300, Vancouver, British Columbia, Canada V6B1G1 ("Impark") is joining in this Agreement with respect to Section C hereof. (1) The Executive and the Company entered into an Employment Agreement dated November 2, 1998 (the "Original Agreement"); (2) Certain significant operational and business developments affecting the Company have occurred since the date the Original Agreement was executed, as a result of which the parties have concluded that an amendment to the Agreement would be in the best interests of both parties, and the parties have accordingly agreed to amend the Agreement in the manner and upon the considerations set forth in this Amendment; (3) Impark is executing this agreement, and shall be bound only by the terms of Section C hereof. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, the parties hereby agree as follows: A. CERTAIN DEFINED TERMS; CONTINUATION OF ORIGINAL EMPLOYMENT AGREEMENT (1) Amended Agreement The term "Amended Agreement" as used in this Amendment refers to the Original Agreement, as amended by this Amendment. (2) "Impark Spinoff" "Impark Spinoff" means (a) the reorganization of certain of the subsidiaries of the Company in order to position the Company's parking real estate assets under Impark and to repay certain indebtedness of Impark, (b) the settlement of certain debts owed by First Union Management, Inc. ("FUMI") to the Company by the transfer to the Company and its subsidiaries of the assets of FUMI relating to its business of leasing and managing parking facilities and (c) and distributing all of the shares of Impark not owned by its directors to the owners of the common shares of the Company (the "Common Shares"), (the date of such distribution being referred to as the "Impark Spinoff Date"). (3) Other Defined Terms Unless otherwise provided herein, capitalized terms herein shall have the meanings ascribed to them in the Original Agreement. As used herein: (4) Continued Effectiveness of Original Agreement Except as otherwise provided in this Amendment to the contrary, the terms and conditions of the Original Agreement as amended by this Amendment shall remain in effect. 2 (5) Inconsistent Provisions In any case in which the terms of this Amendment are inconsistent with the terms of the Original Agreement, the terms of this Amendment shall control. B. AMENDMENT OF CERTAIN SECTIONS OF THE ORIGINAL AGREEMENT THE FOLLOWING SECTIONS OF THE ORIGINAL AGREEMENT ARE HEREBY AMENDED AS SPECIFIED BELOW: (1) Section 4 (a) ("Salary") of the Original Agreement is amended to be Section 4(a)(i) and a new Section 4(a)(ii) is added to read as follows: "(ii) Bonus The Executive shall be entitled to a bonus, on or before December 29, 1999, of $135,000, in cash. (2) Section 4(c)(v) ("Share Option. Grant") is amended so that the three (3) paragraphs included within the subsection captioned "Vesting/Exercise" are deleted; and the following paragraph is inserted: "All of the Share Options vested as of November 2, 1998 (other than the Additional Options, which vested upon grant). All of the $6.50 Options, all of the $8.50 Options, and all of the Additional Options shall be exercisable in full as of December 1, 1999." (3) Section 4(c)(v) is further amended so that the paragraph in the subsection captioned "Exercise Price" is amended in its entirety to read as follows: "(v) (A) The option exercise price with regard to the 360,000 Share Options granted pursuant to this subsection (v) shall be as follows: 180,000 shall be exercisable at $6.50 per Common Share (the "$6.50 Options") and 180,000 shall be exercisable at $8.50 per Common Share (the "$8.50 Options"). (B) Additional Share Options to purchase 125,504 Common Shares having an initial exercise price of $4.00 were issued to the Executive on May 28, 1999, pursuant to the subsection of Section 4(c)(vi) captioned "Additional Share Options." In addition, Additional Options to purchase 31,250 shares have been transferred to the Executive by Daniel Friedman contemporaneously herewith (the "Transferred Options"), and the Company has agreed and consented to such transfer. The Transferred Options shall be exercisable in full as of December 1, 1999. The term "Additional Share Options" shall be deemed to include such Transferred Options. (C) The exercise price of each Share Option (including the Additional Share Options) will be adjusted (but not below zero) (1) to increase on each anniversary of its grant by an amount equal to an increase of 10% per annum (compounded annually) and (2) to decrease from and after the date of its grant through the date of its exercise by the sum of all dividends or other distributions (including the value of non-cash dividends, including without limitation, share dividends, the Distributable Value of the Impark Spinoff and the Attributable Value of other spin-offs) declared per Common Share for the applicable year. As used herein, (1) the "Distributable Value of the Impark 2 3 Spinoff" means the Initial Impark Option Price, and (2) "Attributable Value of other spinoffs" means the value ascribed to such spin-offs by the Company, or if not so ascribed, the fair market value of the assets so spun off. Notwithstanding the foregoing, the adjustment to the exercise price set forth in clause (C) (1) shall not commence until the eighteen (18) month anniversary of the commencement of the Employment Period; and (y) be applied ratably at the time(s) Executive exercises the Share Options (e.g. if Share Options are exercised on the 20 month anniversary of the commencement of the Employment Term, the exercise price in effect on that date would be increased by 1.667% (2/12 of 10%) minus any dividends or other distributions paid on or prior to the date of exercise (to the extent such dividends or other distributions were not previously deducted)." (4) Section 4(c)(v) is further amended so that, in the first paragraph in the subsection captioned "Option Exercise Term," (a) the period (.) at the end of the second sentence shall be replaced by a comma (,) and the following provision shall be added at the end thereof: "except that Additional Options (as defined in subsection 4(c)(vi) below) shall remain exercisable for eight (8) months following such event after which they shall expire." (b) a new sentence shall be added after the second sentence and shall read as follows: "Notwithstanding the foregoing, if the Company enters into an Asset Management Agreement with an entity of which the Executive, David Schonberger and Daniel P. Friedman are the principal equity holders then the $8.50 Options and the $6.50 Options shall be terminated and shall no longer be exercisable if the Asset Management Agreement is executed and is not thereafter terminated pursuant to Article III, Section (a)(v) of the Management Agreement"; and (c) a period (.) shall replace the comma (,) after the first use of the word "expire" in the last sentence, the balance of the last sentence shall be deleted and the "(i)" in such sentence shall be deleted. (5) Section 5(a)(iv) (Good Reason) is amended to add the following lettered subparagraphs (G), and (H) before the words "provided, however:" "(G) The Board of Directors shall have adopted a resolution approving a complete liquidation or dissolution of the Company; or (H) there shall have occurred (1) the Impark Spinoff and (2) a sale or refinancing of the Park Plaza mall on terms acceptable to the Board of Directors; provided, however, that the Good Reason pursuant to this Section 5(a)(iv)(H) shall not occur unless and until David Schonberger and Daniel Friedman shall 3 4 have resigned for Good Reason or shall have been terminated under their respective Employment Agreements with the Company without Cause, after which such termination by reason of the Impark Spinoff and the sale or refinancing of the Parl Plaza mall shall be deemed to have occurred for Good Reason; and provided further that if such Good Reason does occur, the Company, upon receipt of notice of resignation for such Good Reason, waives its right to cure. . (6) Section 5(a)(iv) (Good Reason) is further amended by adding the following sentence at the end thereof. "Notwithstanding the foregoing, the Executive shall not be entitled to terminate her employment for Good Reason until June 1, 2000 unless such Good Reason is described in subparagraph (A) (2) of this subsection (iv). (7) Section 5(a)(vii) ("Change of Control") is amended to delete subsections (D) and (E) thereof. (8) Section 6(c)(i) is amended in its entirety to read as follows: "In the event the Company terminates Executive's employment for any reason other than Cause, death or Disability, or Executive terminates her employment for Good Reason (other than as set forth in Paragraph 6(c)(ii)), or in the event of a Change of Control, the Company shall pay to Executive and Executive shall be entitled to receive the sum total of: (A) the accrued but unpaid Annual Base Salary at the rate then in effect; (B) earned but unpaid incentive compensation and/or bonuses for completed performance periods; and (C) the sum of Six Hundred Thirty Thousand Dollars ($630,000). The aforesaid amounts shall be payable in cash immediately upon such termination. In addition, the Executive shall be entitled to continuation of Executive's participation in all benefit plans, programs or arrangements of the Company (except tax-qualified plans), including, without limitation, Medical Continuation, for a period of two years following such termination." (9) Section 8 ("Non-Compete") is hereby amended to add a new subsection (c) as follows: "(c) First Refusals. (i) Executive agrees that, if, prior to the earlier of (i) the termination of Executive's employment and (ii) the date on which a proposal to liquidate the Company is publicly announced, the Executive shall be offered the opportunity to invest in or acquire an interest in a business of any nature ("Investment Opportunity"), she shall first offer such Investment Opportunity to the Company. Such offer (the "Offer") shall be in writing and shall describe the Offer and the Investment Opportunity in sufficient detail, and provide to the Company substantially all of the written information furnished to her by the party ("Third Party") which made the Offer. The Company's representatives shall thereupon have fifteen (15) business days in which to consider and accept the Offer, and the Executive shall reasonably cooperate with the Company if it shall request further information concerning the Offer and the Executive is able 4 5 to obtain such information from the Third Party. If at the end of such period the Company has not delivered to the Third Party its written acceptance of the Offer (or, having accepted the Offer, shall not proceed to a closing pursuant to the Offer within the time allowed in the Offer and/or shall fail to make such payments (including deposits) to the Third Party as would have been required from the Executive under the terms of the Offer), the Executive shall be free to accept the Offer and consummate the transactions contemplated thereby. The Executive's participation in the Investment Opportunity shall not be deemed a violation of any fiduciary, contractual or other obligation of the Executive to the Company, including under the provisions of Section 3(a) of the Original Agreement. Notwithstanding the foregoing, the time devoted by the Executive to any Investment Opportunity shall not substantially interfere with her performance of services as required under this Agreement." (ii) The obligation of the Executive to make the offers described in subsection (a) above shall terminate upon the date on which a proposal to liquidate or merge the Company is publicly announced. C. ADDITIONAL PROVISIONS ADDED BY THIS AMENDMENT (1) Impark Options (a) Issuance of Impark Options Impark, by its execution of this Agreement, covenants and agrees to issue to the Executive, on the day which is the 30th trading date following the first day on which shares of Impark Common Stock ("Impark Shares") are publicly traded, options to purchase shares of Impark common stock ("Impark Shares") which shall, immediately following the issuance thereof and after giving effect thereto, result in the Executive owning, immediately after the issuance thereof, options (the "Initial Impark Options") to purchase two and one half percent (2 1/2 %) of all of the outstanding common stock of Impark on a fully diluted basis (it being understood that the grant of Initial Impark Options are in lieu of and in full satisfaction of any right the Executive may have to receive options or any other consideration in connection with the Impark Spinoff pursuant to the Plan). As to the Initial Impark Options: (i) The Exercise Price per share of the Additional Impark Options shall be equal to the greater of (1) the last reported sales price of a share of Impark common stock on the day which is the thirtieth (30th) trading date following the first day on which Impark Shares are publicly traded, or (2) the average closing price of a share of Impark common stock for the ten (10) day trading period ending on the date which is the thirtieth (30th) trading date following the first day on which Impark Shares are publically traded, in either case, as reported on the principal trading market Impark Shares where quotes are readily available; (ii) The Impark Options shall be vested in full upon issuance, and shall be exercisable as follows: 25% on each of the first four anniversaries of the Impark Spinoff Date (each 12 month period ending on such anniversaries being an "Exercise Year"). The Impark Options shall be exercisable for a period which ends ten years after the anniversary of the Impark Spinoff Date ("Impark Option Term"); 5 6 (iii) The Initial Impark Options shall be represented by an option certificate which shall contain anti-dilution provisions operable in the event of the issuance of stock splits or similar transactions. The exercise price of the Impark Options shall (A) increase on each monthly anniversary of grant at the rate of 10% per annum, compounded annually; and (B) decrease by the amount, per share, of dividends in respect of Impark common stock paid in cash and the fair market value of dividends paid in property other than cash. (b) Additional Impark Rights and Options. Impark, by its execution of this Agreement, agrees that it will grant to the Executive, at such time as rights to purchase common stock of Impark are offered to Impark's shareholders subsequent to the Impark Spinoff Date ("Rights Offering") is made: (i) The right (the "Impark Rights") to purchase such number of shares of Impark common stock as would, after giving effect to the exercise of such right, result in the Executive acquiring 0.417% of the number of shares issued pursuant to such Rights Offering (not exceeding, however, such number of shares as are issued for a gross aggregate price of $30,000,000) on substantially the same terms and conditions (and identical terms relating to price) as are contained in and are applicable to the Rights Offering; and (ii) additional options ("Additional Impark Options") to purchase, at an exercise price equal to the price per share at which the Rights Offering is made, a number of shares of Impark common stock which would result in the Executive acquiring upon exercise 0.833% of the number of shares issued pursuant to such Rights Offering (not exceeding, however, such number of shares as are issued for a gross aggregate price of $30,000,000). Such Additional Impark Options shall be vested in full upon issuance and shall be exercisable to the extent of 25% on each of the first four anniversaries of the Impark Spinoff Date (each 12 month period ending on such anniversaries being an "Exercise Year"); and shall remain exercisable for a period which ends ten years after the Impark Spinoff Date ("Additional Impark Option Term"); and (iii) notwithstanding the foregoing, the Executive's Impark Rights and her right to be issued Additional Impark Options shall expire upon the Termination Date with respect to Daniel P. Friedman's and David Schonberger's employment with Impark whichever is the latter such Termination Date; provided, however, that if such termination (with respect to the latter Termination Date) is by Impark without Cause, or by the person so terminating for Good Reason, or by reason of the death or disability of the person so terminating, her Impark Rights and her right to receive Additional Impark Options shall expire six (6) months after such latter Termination Date. (c) Pursuant to amendments to the Employment Agreements between each of Daniel Friedman and David Schonberger and the Company of even date herewith (which amendments have been executed by Impark) Impark intends to employ Daniel Friedman and David Schonberger, and Daniel Friedman and David Schonberger have agreed to accept employment in executive positions with Impark. If, following the grant of Impark Options and Additional Impark Options pursuant hereto, neither Daniel Friedman nor David Schonberger remain employed by Impark, then, as of the last of employment date ("Last Employment Date") of the later of Daniel Friedman or David Schonberger ("Last Impark Executive") , (i) If Impark terminated the Last Impark Executive without Cause, or the Last Impark Executive terminated his employment for Good Reason (as such terms are defined in the Employment Agreements applicable to Daniel Friedman and David Shonberger); then (A) all of 6 7 the Impark Options and Additional Impark Options shall become immediately exercisable, the Impark Call Option (as defined below) shall not apply, and (B) all of the Impark Options and Additional Impark Options shall expire to the extent not exercised on or before the last day of the six-month period following the Termination Date; and (ii) if the Last Impark Executive terminated his employment voluntarily without Good Reason, then (A) all of the Impark Options and Additional Impark Options, to the extent not then exercisable, shall continue to become exercisable in accordance with the schedules set forth in (C)(1)(a)(ii) and (C)(1)(b)(ii), respectively; (B) the Impark Options and Additional Impark Options which were not exercisable on the Termination Date shall become subject to the Impark Call Option; and (C) the Impark Options and Additional Impark Options which were exercisable on the Termination Date shall not be subject to the Impark Call Option, shall continue to be exercisable and shall expire to the extent not exercised on or before the last day of the six-month period following the Last Employment Date. (iii) Upon the Executive's death or disability, the Executive's estate may exercise all Impark Options and Additional Impark Options which were exercisable on the date of death or disability plus a Pro Rata portion of the Impark Options and Additional Impark Options which would next have become exercisable had such death or disability not occurred. As used herein, "Pro Rata" means an amount of Impark Options and Additional Impark Options equal to (x) the percentage equal to (i) the number of days from the commencement of the Exercise Year (as defined in subsections (a)(ii) (as to Impark Options) and (b)(ii) (as to Additional Impark Options) of this Section C) in which such termination occurs through the Termination Date divided by (ii) 365; multiplied in each case by (y) the number of Impark Options and Additional Impark Options, respectively, which would otherwise have become exercisable at the end of the Exercise Year in which such death or disability occurs. Such exercise may be effected until the earliest of one year following the Executive's death or disability Date or the end of the Option Term or Additional Impark Option Terms, after which time any unexercised Impark Options or Additional Impark Options shall expire. (d) Impark Call Option. If any Impark Options and Additional Impark Options are subject to an Impark Call Option pursuant to subsection (c)(ii) above (the Impark Call Option) then Impark shall have the right to require the Executive to transfer such Options (the "Subject Options") to Impark at any time after the Last Employment Date for a price equal to the "Exercise Spread" (as defined herein). If such Exercise Spread is zero or less, Impark may purchase the Subject Options for no consideration. Impark shall provide written notice to Executive that it is exercising the Call Option and the date on which such notice is deemed to have been given under the terms of this Agreement shall be deemed the "Valuation Date". The "Exercise Spread" shall be (i) the difference between (a) the exercise price of a Subject Option and (b) the "Closing Price" of a share of Impark common stock ("Common Stock") on the Valuation Date. The "Closing Price" means (i) if the Common Stock is listed or admitted to trading on the New York Stock Exchange (the "NYSE"), the American Stock Exchange ("AMEX") any national securities exchange or the Nasdaq Stock Market ("Nasdaq"), the closing price on the Valuation Date, or if no such sale takes place on such day, the average of the closing bid and asked prices on such day; (ii) if the Common Stock is not listed or admitted to trading on the NYSE, the AMEX, any national securities exchange or the Nasdaq, the last reported sale price on the Valuation Date or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by Impark; (iii) if the Common Stock is not listed or admitted trading on the NYSE, the AMEX, any national securities exchange or the Nasdaq and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on the Valuation 7 8 Date, as reported by a reliable quotation source designated by Impark, or if there shall be no bid and asked prices on the Valuation Date, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than five (5) days prior to the date in question) for which prices have been so reported; provided, however, that if there are no bid and asked prices reported during the five (5) days prior to the date in questions, the Closing Price of the Common Stock shall be determined by the independent trustees of Impark acting in good faith on the basis of such quotations and other information as they consider, in their reasonable judgment, appropriate. D. GENERAL PROVISIONS (1) Notices. All notices or other communications required or permitted hereunder shall be made in writing and shall be deemed to have been duly given if delivered by hand or delivered by a recognized delivery service or mailed, postage prepaid, by express, certified or registered mail, return receipt requested, and addressed to (1) to the Company and Impark at their respective addresses as set forth above and (2) to the Executive at her address as set forth in the Company records and at 15 Woodlawn Avenue, New Rochelle, New York 10804 (or to such other address as shall have been previously provided in accordance with this Section 7). In addition, copies of any notice to the Executive shall be delivered to Herrick, Feinstein LLP, 2 Park Avenue, 21st Floor, New York, New York 10016, Attention: Harvey S. Feuerstein, Esq. (2) Governing Law. This Amendment will be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws thereunder. (3) Severability. Whenever possible, each provision and term of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or term of this Amendment shall be held to be prohibited by or invalid under such applicable law, then, such provision or term shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or affecting in any manner whatsoever the remainder of such provisions or term or the remaining provisions or terms of this Amendment. (4) Counterparts. This Amendment may be executed in separate counterparts, each of which is deemed to be an original and both of which taken together shall constitute one and the same agreement. (5) Headings. The headings of the Paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute a part hereof and shall not affect the construction or interpretation of this Agreement. 8 9 (6) Entire Agreement. This Amendment and the Original Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and thereof, and supersede all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof. (7) Waiver and Modification. No amendment, modification, waiver, termination or cancellation of this Amendment shall be binding or effective for any purpose unless it is made in a writing signed by the party against whom enforcement of such amendment, modification, waiver, termination or cancellation is sought. No course of dealing between or among the parties to this Amendment shall be deemed to affect or to modify, amend or discharge any provision or term of this Amendment. No delay on the part of the Company or Executive in the exercise of any of their respective rights or remedies shall operate as a waiver thereof, and no single or partial exercise by the Company or Executive of any such right or remedy shall preclude other or further exercise thereof. A waiver of right or remedy on any one occasion shall not be construed as a bar to or waiver of any such right or remedy on any other occasion. The respective rights and obligations of the parties hereunder shall survive the Executive's termination of employment and termination of this Amendment to the extent necessary for the intended preservation of such rights and obligations. (8) Exculpation. Notwithstanding anything contained herein to the contrary, this Agreement is made and executed on behalf of the Company by its officer(s) on behalf of the trustees thereof, and none of the trustees or any additional or successor trustee hereafter appointed, or any beneficiary, officer, employee or agent of the Company shall have any liability in her personal or individual capacity, but instead, Executive shall look solely to the property and assets of the Company for satisfaction of claims of any nature arising from or in connection with this Agreement. 9 10 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. Executive: First Union Real Estate Equity And Mortgage --------- Investments ANNE NELSON ZAHNER /s/ Anne Nelson Zahner By: [SIG] ---------------------- ------------------------- Name: Title: IMPERIAL PARKING CORPORATION (formerly known as First Union Canadian Holdings, Inc.) (as to Section C only) By: -------------------------- Name: Title
10 EX-10.V 5 ASSET MANAGEMENT AGREEMENT 1 EXHIBIT (10)(v) ASSET MANAGEMENT AGREEMENT THIS ASSET MANAGEMENT AGREEMENT is executed as of March 27, 2000, by and between RADIANT PARTNERS, LLC, a New York limited liability company (the "Manager") and FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS, an Ohio business trust (the "Trust") with principal executive offices at 551 Fifth Avenue, Suite 1416, New York, New York 10176. W I T N E S S E T H: WHEREAS, the Board of Trustees of the Trust (the "Board") has determined that the best interests of the Trust's beneficiaries would be served by a reorganization of the Trust's management structure pursuant to which the management of the assets and supervision of the operations of the properties of the Trust and of its affiliates would be undertaken by an independent entity reporting to the Board; WHEREAS, the principal officers of the Manager previously held senior executive positions with the Trust and have a substantial familiarity with the assets of the Trust and of its affiliates, which assets consist of fee, leasehold and mortgage interests in office and residential buildings, shopping centers, and parking facilities (the "Properties" - such term to include properties owned or controlled, directly or indirectly, by affiliates of the Trust on the date hereof and by any future affiliates, including, without limitation, any liquidating trust to be created by the Trust, formed by and owned or controlled, directly or indirectly, by the Trust to own, operate and/or dispose of properties owned by the Trust or its affiliates); WHEREAS, the Trust desires to retain the Manager to operate and administer the Properties and to provide corporate management services, and the Manager is willing to be so retained and to perform such services during the term hereof and any extension thereof on behalf of the Trust and its affiliates; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I ENGAGEMENT OF THE MANAGER 1.1 APPOINTMENT. The Trust hereby retains the Manager, and the Manager hereby agrees to so serve, on the terms and conditions herein set forth, to provide asset and corporate management services with respect to the Trust and its affiliates and the Properties, in accordance with the terms of this Agreement. 2 1.2 SERVICES OF THE MANAGER. (a) Subject to the other terms and provisions of this Agreement, the Manager shall be responsible for conducting and overseeing the business and financial affairs of the Trust and its affiliates pertaining to the ownership, management, operation, administration, promotion, maintenance, improvement and leasing of the Properties, and administration of its corporate functions including, but not limited to, the following: (i) Engaging a property manager to carry out the day-to-day operation and management of each of the Properties, and overseeing and reviewing the performance by the property manager of the property manager's duties, including its collection and proper deposits of rental payments; (ii) Formulating and overseeing the implementation of strategies for the management, operation, administration, promotion, maintenance, improvement, financing and refinancing, leasing, and disposition of the Properties; (iii) Reviewing on a periodic basis the property manager's performance of maintenance and repairs, and arranging for supervision of tenant improvement work and capital improvement projects to be performed on behalf of the Trust and its affiliates, at the Properties; (iv) Disbursing all sums payable by the Trust and its affiliates, including operating expenses, (including, but not limited to, Manager's compensation hereunder, other than compensation to be received in accordance with Section 2.2(b) hereof or Section 3(b) hereof) and capital expenditures; (v) Supervising the maintenance of the Trust's and its affiliates' office records, books and accounts in accordance with the governing documents of the Trust and its affiliates, as now or hereafter amended (collectively, the "Trust Documents"), and in conformity with the accounting principles utilized by the Trust and its affiliates, and causing to be prepared and filed on behalf of the Trust and its affiliates, all reports, returns and statements required to be prepared or filed by the Trust and its affiliates; (vi) Retaining on behalf of the Trust and its affiliates, and at the Trust's and its affiliates' sole cost, an independent certified public accountant to audit the financial statements for each fiscal year of the Trust and its affiliates and to prepare quarterly and other periodic reports reflecting, for such period, the financial status and activities of the Trust and its affiliates and the Properties; (vii) As and when necessary or appropriate in the Manager's determination, engaging, at the Trust's and its affiliates' sole cost, consultants, appraisers, legal counsel and other professionals, in accordance with Article IV hereof; (viii) Reviewing and evaluating bids to purchase from the Trust and its affiliates, any of the Properties or other assets and facilitating the consummation of the disposition of any Properties or other assets of the Trust and its affiliates; -2- 3 (ix) Attending regular and special meetings of the Trustees and, as and when requested, committee meetings of the Board of Trustees; (x) In general, providing to the Trust and its affiliates the services currently performed by the senior officers of the Trust other than the chief financial officer and, after March 31, 2001, the chief financial officer, subject to the supervision of the Board, such services to include: (A) recommending the timing and amount of distributions to beneficiaries; (B) recommending corporate finance decisions; (C) overseeing filings with the Securities and Exchange Commission; and (D) management of investor relations; and (xi) Taking such other actions as may be necessary or appropriate to assist the Trust and its affiliates, in conducting its business, including, but not limited to, causing the execution and delivery of all agreements in the ordinary course of business of the Trust and its affiliates, necessary in connection with the performance of the above_described duties and within the scope of the authority granted to the Manager hereunder. 1.3 PERFORMANCE. (a) The Manager shall perform its duties in a prudent and businesslike manner, and shall use commercially reasonable efforts to maximize the yield from the management, operation, maintenance, leasing, development and financing and, where appropriate, liquidation of the assets of the Trust and its affiliates. The Manager shall seek to realize the goals of the Trust and its affiliates, set forth in the Trust Documents or adopted by the Board of Trustees and shall conduct its activities hereunder (including the commencement and settlement of legal proceedings) in accordance with the Trust Documents and the directives of the Board of Trustees. (b) Nothing herein shall constitute a representation, warranty or covenant by the Manager concerning the future performance of the Trust or its affiliates, as a whole or of any Property held by the Trust or its affiliates. Without limitation of the foregoing, the Manager has not made any representations concerning the fair market value of the Properties or any of the Trust's or its affiliates' other assets, the amounts which may be realized upon the disposition thereof, the revenues that may be received or costs (including finance costs) that may be incurred in connection with the operation, maintenance, improvement or disposition thereof. 1.4 ROLE OF THE TRUST. The Board reserves the right to approve in advance, or delegate authority for such advance approval, to the Executive Committee or other committee or representative of the Board, any major investment, operating and financing decisions with respect -3- 4 to the Trust or its affiliates, the Properties and other assets now owned or hereafter acquired by the Trust or its affiliates, including, but not limited to, decisions to: (a) sell, lease, assign, convey, mortgage, pledge or otherwise transfer or encumber any of the Properties or any interest of the Trust or its affiliates, other than the sale or disposition of miscellaneous assets not exceeding $50,000 for any transaction or series of related transactions and not required for the operations of the Trust or its affiliates or the Properties (such as obsolete computers or other equipment); provided, that the Manager shall not require advance approval for the execution of a tenant's lease for fewer than 20,000 square feet of rentable space of a Property; (b) borrow money or establish credit facilities on behalf of the Trust or its affiliates (except for unsecured trade debt incurred in the ordinary course of business), or prepay the principal balance of any mortgage loan except out of the proceeds of the disposition or refinancing of assets securing such mortgage loan; (c) commence legal actions on behalf of the Trust or its affiliates, except for actions to collect rent and evict tenants in default under their leases; (d) merge the Trust or any of its affiliates with another entity, tender for Trust shares or shares or any of its affiliates, redeem shares or pay off liabilities of the Trust or its affiliates; (e) confess a judgment, admit a liability or accept a settlement, compromise or payment of any claim, except for settlements of immaterial disputes (including lease terminations and bankruptcy settlements) with tenants; (f) write off assets; (g) make distributions to beneficiaries; and (h) purchase any assets or make any investments. ARTICLE II COMPENSATION 2.1 ANNUAL FEE. As compensation for its services hereunder, the Manager shall receive a fee equal to One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) per year (the "Annual Fee"). The Annual Fee shall be payable monthly in advance, in installments of One Hundred Twenty-five Thousand and 00/100 Dollars ($125,000.00), on the first business day of each month. If the Effective Date occurs on a date other than the first business day of a month, then the first payment of such fee shall take place one business day after the Effective Date and such fee shall be pro rated for such month. If this Agreement is terminated in accordance with Article III hereof on a date other than the last business day of the month, then such fee shall be pro rated for such month. -4- 5 2.2 INCENTIVE FEE. (a) As further compensation for its services hereunder, the Manager shall be paid a fee (the "Incentive Fee"), at the times and pursuant to the procedures set forth below, equal to ten percent (10%) of (A) the Excess Per Share Distribution, multiplied by (B) the number of Shares of the Trust in respect of which an Excess Per Share Distribution is made. (b) Definitions as used herein: (i) "Excess Per Share Distribution" means the aggregate of all Distributions in respect of a single common share of beneficial interest of the Trust which exceeds $4.60 per share. (ii) "Distributions" means distributions first made after March 1, 2000, other than the Impark Spinoff, (but not share repurchases) in respect of common shares of beneficial interest of the Trust, including distributions of cash, debt obligations and the fair market value of other property whether or not in connection with the Trust's liquidation, and the fair market value of any consideration received in exchange for common shares of beneficial interest by reason of a merger or consolidation with a third party entity or other similar transaction. In the event of a merger, consolidation or other similar business combination transaction, the Manager will receive a credit toward the Distribution amount equal to the fair market value of the consideration received by holders of common shares of beneficial interest of the Trust received in exchange for their common shares of beneficial interest of the Trust, including, but not limited to, the fair market value ascribed in the transaction to stock, preferred stock, debt instruments, cash, warrants, options, etc., received by the holders of common shares of beneficial interest of the Trust. For purposes hereof, "fair market value" in connection with a merger, consolidation or other similar business combination transaction shall be equal to the product of (A) the average of the closing prices of the common shares of beneficial interest of the Trust on the ten (10) consecutive trading days ending on the trading date immediately preceding the effective date of such transaction and (B) the total number of common shares of the Trust outstanding on the last such trading day. Except as otherwise provided herein, "fair market value" shall be determined by the Board of Trustees of the Trust in good faith; provided, however, that if the Manager disagrees in good faith with such determination, then the Manager shall be entitled to seek arbitration in accordance with Section 13.2 herein with respect to this issue. For purposes hereof, the "Impark Spinoff" means any distribution to holders of common shares of beneficial interest of the Trust of all or substantially all of the interests of the Trust in Imperial Parking Corporation in accordance with Imperial Parking Corporation's Form 10, as amended, filed with the Securities and Exchange Commission on March 2, 2000, as the same may be amended from time to time. (c) Time of Payment The entire amount of the Incentive Fee, to the extent then earned, shall be paid to the Manager from time to time, as, when and if Distributions are made to shareholders of the Trust. The Incentive Fee shall be deemed earned when the aggregate Distributions per share first exceed the sum of $4.60. The amount of each payment of the Incentive Fee shall equal the entire Incentive Fee computed pursuant to Section 2.2(a), less the amount thereof which has theretofore been paid to the Manager. (d) Survival of Incentive Fee Obligations Unless the Trust terminates this Agreement in accordance with Article III(a)(ii) or III(a)(v) hereof, the obligations of the Trust to pay -5- 6 the Incentive Fee shall survive the termination of this Agreement, and shall continue until the earlier of: (i) the Trust having been fully liquidated, (ii) the consummation of a merger, consolidation or other similar business combination transaction involving the Trust and (iii) June 30, 2003; provided, that, notwithstanding clause (iii) of this Section 2.2(d), the Incentive Fee, if any, may be paid after June 30, 2003 if and to the extent it is payable with respect to Distributions made after such date that are directly attributable to net proceeds received by the Trust from any sale or refinancing transaction with respect to real property assets owned by the Trust as of the date hereof, which transaction is consummated (x) on or before June 30, 2003 or (y) within six (6) months after June 30, 2003 and a definitive agreement with respect to such transaction is executed on or before June 30, 2003. If the Trust terminates this Agreement in accordance with Article III (a)(ii) or (III)(a)(v) hereof, then the obligations of the Trust to pay the Incentive Fee shall automatically terminate. 2.3 COSTS, EXPENSES AND DISBURSEMENTS. (a) In addition to the payments described in Sections 2.1 and 2.2 above, the Manager shall be reimbursed for (or, upon Manager's request, the Trust shall pay directly) all out-of-pocket costs and expenses incurred by the Manager in connection with the performance of its duties hereunder, including, without limitation, (i) all amounts paid for travel to and from the Properties, (ii) all fees and costs paid in connection with the business and operations of the Trust to Third Party Advisors (as defined in Section 4.1(a)) not directly paid for by the Trust; and (iii) the salary of the Trust's Chief Financial Officer for such time and at such amounts as mutually agreed upon by the Trust's Board and the Manager, but in no event shall the Trust pay such salary past March 31, 2001. (b) All payments to be made by the Trust for reimbursement of the Manager pursuant to the provisions hereof shall be made within ten (10) days of the Trust's receipt of appropriate written evidence thereof. All direct payments by the Trust pursuant to the provisions hereof shall be made promptly as requested by the Manager, but also subject to prior receipt of appropriate written evidence thereof. (c) Notwithstanding the foregoing, the Manager shall, on and after the Effective Date, credit the Trust, against the Annual Fee, with the first $35,000 of the salary of the person serving as Chief Financial Officer of the Trust, such credit to be effected in equal monthly amounts of $1,458.33 for each month of the Initial Term of this Agreement. ARTICLE III TERM (a) The term of this Agreement shall commence as of the Effective Date and shall terminate on the earlier of: (i) the second anniversary of the Effective Date (the "Initial Term"); (ii) at the election of the Trust, a termination effected in accordance with Article VIII hereof; -6- 7 (iii) at the election of the Trust, any time following the execution of an agreement relating to a merger, consolidation or other similar business combination transaction; provided, that, the Trust provides 30 days notice of such event to the Manager; (iv) at the election of the Trust, any time after the Board of Trustees determines in good faith that the remaining equity of the Trust, including the preferred shares of the Trust, has a fair market value of less than $20,000,000; provided, that, the Trust provides 30 days notice of such event to the Manager; and (v) at the election of the Trust, any time prior to June 1, 2000, it being understood that, notwithstanding anything in this Agreement to the contrary, the Trust may terminate this Agreement prior to the Effective Date in accordance with this clause. Notwithstanding the foregoing, the Initial Term may be extended by the Trust for one (1) additional twelve-month period (the "Extended Term"), provided that the Trust shall deliver written notice of such extension not later than six (6) months prior to the end of the Initial Term. (b) If the Trust terminates this Agreement after the Effective Date and prior to the end of the Initial Term, or, having extended this Agreement, prior to the end of the Extended Term, other than, in either case, by reason of a termination in accordance with Article III (a)(ii) or III(a)(v) hereof, the Trust shall be required to pay to the Manager fifty percent of the entire amount of the unpaid Annual Fees which would have been earned by the Manager through the balance of the Initial Term or the Extended Term, as the case may be, had the Agreement not been so terminated; except that in no event will such payment be more than $750,000.00 or less than $500,000.00. In addition, upon the termination of this Agreement and regardless of whether such termination has occurred by reasons of the expiration of the Initial Term or the Extended Term or pursuant to Article VIII, the Trust shall pay to the Manager all accrued and unpaid Annual Fees, all unreimbursed costs and expenses incurred by the Manager for which reimbursement is required pursuant to Section 2.3. (c) Effective Date The Effective Date of this Agreement is the date on which the employment of each of Anne Nelson Zahner, David Schonberger and Daniel P. Friedman has terminated pursuant to their Employment Agreements as each had been amended as of the date hereof. ARTICLE IV RETENTION OF CONSULTANTS: ADDITIONAL SERVICES 4.1 RETENTION OF THIRD PARTY ADVISORS. (a) The Manager shall, subject to the reimbursement and direct payment requirements under Section 2.3, retain such third party consultants and professional advisors, as the Manager shall reasonably deem necessary for the operation and management of the Trust's and its affiliates' assets and otherwise required or necessary in order to enable the Manager to perform the management services undertaken by the Manager hereunder. Such third party consultants and professional advisors shall include property managers, attorneys, accountants, financing placement agents, insurance consultants, leasing agents, appraisers, construction managers, environmental engineers, asbestos abatement advisors, computer hardware and software and management -7- 8 information system consultants for the Trust's and its affiliates' operations, and brokers (collectively, "Third Party Advisors"). (b) The retention by the Manager of legal counsel and independent certified public accountants shall be subject to the approval of the Trust, which approval the Trust agrees it will not unreasonably withhold, condition or delay. (c) The retention of general real estate consultants (e.g., appraisers, environmental engineers, asbestos abatement advisers, brokers, property managers, insurance agents, etc.) shall not require the approval of the Trust, provided such retentions are at market rates, and shall otherwise comply with all applicable provisions of the Trust Documents. (d) The Manager agrees that during the term hereof, it will cause each of its members to continue to hold the officer positions currently held by them with the Trust, subject to the right of the Board to remove any or all of them at any time. The continued holding of such positions shall be for administrative and ministerial purposes only, and shall not require any of such persons to perform substantive tasks, it being understood that the performance by such persons of services related to the Trust or the Properties shall be carried out by such persons as members and employees of the Manager, except to the extent such officers are requested to review and execute (i) reports, registration statements and other filings required to be filed with state, federal and other governmental authorities, including the Securities and Exchange Commission, and (ii) officers' certificates. The termination by the Trust of any of such person's position as an officer of the Trust or the voluntary termination by any such person of his or her position as an officer if such person is immediately replaced by a person reasonably acceptable to the Board of Trustees shall not constitute a default by the Manager under this Agreement. ARTICLE V ACCOUNTING SYSTEM 5.1 The Manager shall cause to be maintained by a Third Party Advisor an adequate and separate accounting system in connection with its management of the Trust and its affiliates, in accordance with sound business practices. The books and records shall be kept in a manner consistent with the Trust Documents and in conformity with the accounting principles utilized by the Trust and its affiliates and shall be maintained at all times at the principal place of business of the Manager. The Trust and its affiliates, through their duly authorized agents, shall have the right and privilege, during normal business hours, of examining, inspecting and copying such books and records. The principal place of business of the Manager shall be maintained at the address set forth for notices to the Manager in Article 11 below or such other address as the Manager shall notify the Trust of in writing. ARTICLE VI RELATIONSHIP AND AUTHORITY The Trust and the Manager shall not, by virtue of this Agreement or the performance thereof by either party, constitute a partnership, joint venture or joint enterprise in the performance of the Manager's duties hereunder. The Manager may, at its election, so inform third parties with whom it deals on behalf of the Trust and may take other steps to carry out the intent of this Article 6. -8- 9 ARTICLE VII POWER OF ATTORNEY The Trust hereby irrevocably appoints the Manager, and any officer or agent of the Manager, with full power of substitution, its true and lawful attorney-in-fact with full, irrevocable power and authority in the Trust's place and stead and in the Trust's name and on the Trust's behalf or in Manager's own name, from time to time and at any time until the termination of this Agreement pursuant to Article III or Article VIII hereof, to do any and all things in the Manager's reasonable discretion required or desirable to be done to carry out the terms or to accomplish the purposes of this Agreement, consistent with and subject to the scope of the authority granted to the Manager under the terms of this Agreement. Nothing contained in this Article VII shall be construed to expand the scope of authority granted to the Manager under this Agreement. The Trust hereby ratifies all actions taken by or on behalf of the Trust pursuant to this power of attorney or otherwise as provided in this Agreement. This power of attorney is coupled with an interest and shall be irrevocable until this Agreement is terminated. The powers conferred on the Manager hereunder are solely to protect its interest and shall not impose any duty upon it to exercise any of such powers. ARTICLE VIII EVENTS OF DEFAULT: TERMINATION 8.1 (a) Defaults. Each of the following events shall constitute an "Event of Default" by the Manager under this Agreement: (i) The failure by the Manager to perform any material duty or obligation imposed upon it under this Agreement or any other material breach of this Agreement by the Manager; provided, however, that no such failure or breach shall be deemed to constitute an Event of Default unless such failure or breach continues for a period of thirty (30) days after the Manager's receipt of written notice from the Trust of such failure or breach or, if such failure or breach is not capable of being cured within said thirty (30)-day period, the Manager shall have failed diligently and in good faith to commence to cure the same within said thirty (30)-day period and to have diligently continued to prosecute the same; (ii) The Manager's liquidation, bankruptcy or insolvency, including: (A) the filing of a voluntary petition seeking liquidation, reorganization, arrangement or readjustment, in any form, of its debts under Title 11 of the United States Code or any other federal or state insolvency law, or its filing an answer consenting to or acquiescing in any such petition; or (B) the expiration of ninety (90) days after the filing of an involuntary petition under the Title 11 of the United States Code, or any involuntary petition seeking liquidation, reorganization, rearrangement or readjustment of its debts under the federal or state insolvency law, provided that the same shall not have been vacated, set aside or stayed within such 90-day period; or -9- 10 (iii) The commitment by the Manager of any act of fraud, willful misconduct or gross negligence in connection with the performance of its duties hereunder. (b) Termination Upon Default. The occurrence of an Event of Default shall entitle the Trust to terminate this Agreement upon two (2) days prior written notice to the Manager, without any further obligation or liability to the Manager other than the Trust's liability for any compensation or right to reimbursement accrued or otherwise payable under Article II hereof through the date of termination only and any liability under Article IX below. ARTICLE IX INDEMNIFICATION (a) The Trust shall indemnify the Manager and any present or former officer, member, director, employee or agent of the Manager or the personal representatives thereof ("Manager Affiliates"), made or threatened to be made a party in any civil or criminal action or proceeding by any person (including by the beneficiaries of the Trust whether any such proceeding is brought directly or derivatively), arising out of or in connection with the execution and performance of this Agreement by the Manager and/or any Manager Affiliate, (including, but not limited to liabilities to persons relating to the use, occupancy, visitation, catastrophe or other event pertaining to the Properties) against judgments, fines, amounts paid in settlement and reasonable expenses, including, without limitation, court costs, attorneys' fees and disbursements and those of accountants and other experts and consultants incurred as a result of such action or proceeding or any appeal therein, all of which expenses as incurred shall be advanced by the Trust pending the final disposition of such action or proceeding, it being understood that such advances shall be returned by the Manager and/or Manager Affiliate to the Trust in the event that the Manager and/or Manager Affiliate, as the case may be, is finally determined not to be entitled to indemnification under the last sentence of this subsection. The Trust shall also provide such indemnification to any Manager Affiliate and the heirs, successors or assigns of such Manager Affiliate and his or her representatives brought by reason of, arising out of in connection with, or by virtue of the fact that such Manager Affiliate is or was a Trustee or officer of the Trust, (including indemnification in respect of any excise tax assessed on such a person in connection with service to an employee benefit plan), or served any other trust, partnership, corporation, limited liability company, joint venture, trust, employee benefit plan, or other entity or enterprise in any capacity at the request of the Trust or at the request of the Manager in connection with the services provided by the Manager hereunder. Such required indemnification shall be subject only to the exception that no indemnification may be made to or on behalf of the Manager or a Manager Affiliate in the event and to the extent that a judgment or other final adjudication adverse to the Manager or a Manager Affiliate establishes that his or its acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that he or it personally gained in fact a financial profit or other advantage to which he or it was not legally entitled (provided, however, that indemnification shall be made upon any successful appeal of any such adverse judgment or final adjudication). (b) If any proceeding is commenced in which any relief is sought against both the Trust and the Manager and/or a Manager Affiliate and the Manager or a Manager Affiliate seeks indemnification pursuant to this Article IX, and the Manager or a Manager Affiliate reasonably determines that a conflict exists between the Trust and the Manager or a Manager Affiliate, separate counsel may be selected by the Manager to defend the Manager or a Manager Affiliate, and the fees, costs and disbursements of such separate -10- 11 counsel shall be advanced by the Trust, subject, however, to reimbursement in the event that the Manager and/or Manager Affiliate, as the case may be, is finally determined not to be entitled to indemnification under the last sentence of subsection (a) above. (c) In no event shall any party to any such proceeding be entitled to effect a settlement thereof without the written consent of all other parties to such proceeding unless such settlement: (i) results in a dismissal with prejudice as to all of the claims in such proceeding with respect to a non-consenting party, and (ii) does not require the non-consenting party to take any affirmative action (other than ministerial steps in connection with such settlement) and does not require the payment of any money by the non-consenting party. (d) The foregoing right of indemnification shall not be deemed exclusive of any and other rights to which the Manager or any Manager Affiliate, or their successors, assigns or the heirs or representatives, may be entitled apart from this Article IX under law or the Trust Documents, including such rights of indemnification as shall otherwise be available to the Manager or any Manager Affiliate by virtue of the fact that he or she previously served as an officer, Trustee, employee or agent of the Trust. (e) Neither the Manager nor any of the Manager Affiliates shall be liable to the Trust or any of the beneficiaries of the Trust for any acts or omissions or for any error of judgment or mistake of fact or law, except for willful misconduct or gross negligence, but in no event shall the liability of the Manager or Manager Affiliate exceed the personal liability which would be imposed upon an officer of a corporation organized under the laws of the State of Delaware. ARTICLE X WAIVER AND INVALIDITY 10.1 WAIVER. The failure of either party to insist upon a strict performance of any of the terms or provisions of this Agreement or to exercise any option, right or remedy herein contained, shall not be construed as a waiver or as a relinquishment for the future of such term, provision, option. right or remedy, but the same shall continue and remain in full force and effect. No waiver by either party of any term or provision hereof shall be deemed to have been made unless expressed in writing and signed by such party. 10.2 PARTIAL INVALIDITY. In case any one or more of the provisions contained in this Agreement should be determined by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect against a party hereto, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby and such invalidity, illegality or unenforceability shall only apply as to such party in the specific jurisdiction where such judgment shall be made. -11- 12 ARTICLE XI ASSIGNMENT Neither party shall assign or transfer or permit the assignment or transfer this Agreement without the prior written consent of the other party. ARTICLE XII NOTICES All notices provided for in this Agreement shall be in writing and shall be delivered personally or by postage-prepaid registered or certified mail, at the following address of each party: TO THE TRUST: First Union Real Estate Equity and Mortgage Investments c/o Gotham Partners LLC 110 East 42nd Street, 18th Floor New York, New York Attention: William Ackman Copies of all notices to the Trust to be sent to: Fried, Frank, Harris, Schriver & Jacobson One New York Plaza New York, New York 10004-1980 Attention: Steven G. Scheinfeld, Esq. TO THE MANAGER: Radiant Partners, LLC 551 Fifth Avenue, Suite 1416 New York, New York 10176 Attention: Daniel Friedman COPIES OF ALL NOTICES TO THE MANAGER TO BE SENT TO: Herrick, Feinstein LLP 2 Park Avenue, 21st Floor New York, New York 10011 Attention: Harvey S. Feuerstein, Esq. AND TO Goldberg, Weprin & Ustin 1501 Broadway, 22nd Floor New York, New York 10036 Attention: Andrew Albstein, Esq. -12- 13 Notice shall be deemed given upon receipt thereof. Any party hereto may change the address herein specified for notice purposes by ten (10) days' prior written notice to the other party. With the exception of default notices or a notice of the exercise of any right by a party to another party, copies of notices to attorneys are an accommodation only and are not necessary for the validity of a notice. ARTICLE XIII APPLICABLE LAW; ARBITRATION 13.1 GOVERNING LAW. This Agreement is made and entered into in the State of New York, and its interpretation, validity and performance shall be governed by the laws of the State of New York, without regard to conflict of laws principles. 13.2 ARBITRATION. Any dispute or controversy between the Manager or any of its employees or the Manager Affiliates, and the Trust or any of its affiliates arising in connection with this Agreement, any amendment thereof, or the breach thereof shall be determined and settled by arbitration in New York, New York, by a panel of three arbitrators in accordance with the rules of the American Arbitration Association. Any award rendered therein shall be final and binding upon the Trust, its affiliates and the Manager and any of its employees or the Manager Affiliates and their respective legal representatives and judgment may be entered in any court having jurisdiction thereof. The expenses of such arbitration shall be paid by the party against whom the award shall be entered, unless otherwise directed by the arbitrators. ARTICLE XIV MODIFICATION: COUNTERPARTS Any change or modification of this Agreement must be in writing signed by both parties hereto. This Agreement shall be executed in one or more counterparts, each of which shall be deemed an original. ARTICLE XV MISCELLANEOUS 15.1 HEADINGS. Heading of Articles and Sections are inserted only for convenience and are in no way to be construed as a limitation of the scope of the particular Articles or Sections to which they refer. 15.2 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement with respect to the subject matter hereof between the parties and supersedes all prior understandings and writings, and may be changed only by a writing signed by the parties hereto. 15.3 CONSENTS. All consents to be given by the Trust or its partners must be in writing. -13- 14 15.4 NO PERSONAL LIABILITY. Notwithstanding anything contained herein to the contrary, this Agreement is made and executed on behalf of the Trust, a business trust organized under the laws of the State of Ohio, by its officer(s) on behalf of the Trustees thereof, and none of the Trustees or any additional or successor Trustee hereafter appointed, or any beneficiary, officer, employee or agent of the Trust shall, except as otherwise may be required by law, have any liability in such Trustee's, beneficiary's, officer's, employee's or agent's personal or individual capacity, but instead, all parties shall look solely to the property and assets of the Trust for satisfaction of claims of any nature arising under or in connection with this Agreement. 15.5 Covenants. (a) The Manager shall use reasonable efforts to ensure that all persons having dealings with the Trust through Manager shall be informed that no trustee, shareholder, officer or agent of the Trust shall be held to any personal liability, nor shall their private property be used for the satisfaction of any obligation or claim or otherwise in connection with the affairs of the Trust, but the trust estate only shall be liable. The Manager recognizes and agrees that every agreement or other written instrument entered into by the Manager on behalf of the Trust shall contain a provision stating the above limitation. (b) Notwithstanding any provision in this Agreement to the contrary, the Manager shall not knowingly take any action (including, without limitation, the furnishing or rendering of services to tenants of property or managing any real property) and shall use its reasonable efforts to avoid taking any action which would (1) adversely affect the status of the Trust as a real estate investment trust ("REIT"), as defined in the Internal Revenue Code of 1986, as amended or (2) materially violate any law, rule, regulation, or statement of policy of any governmental body or agency having jurisdiction over the Trust or over the Properties, or (3) otherwise not be permitted by Trust Documents. (c) In the event that the terms of this Agreement at any time shall, in the opinion of counsel for the Trust, threaten to impair the status of the Trust as a REIT, then the Trust shall propose such amendments to or substitute arrangements for this Agreement, with prospective or retroactive effect, as may in its opinion be necessary to protect and preserve the status of the Trust as a REIT, provided the material economic terms hereof are not altered. (d) If the Manager shall at any time become aware of facts or circumstances which might threaten to impair the status of the Trust as a REIT, then the Manager shall immediately make such facts and circumstances known to the Chairman of the Board of the Trust. (e) The Manager agrees and understands that in the Manager's position with the Company, the Manager will be exposed to and receive information relating to the confidential affairs of the Trust and its affiliates, including, but not limited to, financial information, account data, technical information, business and marketing plans, strategies, customer information, other information concerning the Trust's products, promotions, development, financing, expansion plans, business policies and practices, and other forms of information considered by the Trust to be confidential and in the nature of trade secrets. The Manager agrees that during the term of this Agreement and thereafter, the Manager will keep such information confidential and not disclose such information, either directly or indirectly, to any third person or entity without the prior written consent of the Trust. This confidentiality covenant has no temporal, geographical or territorial -14- 15 restriction. Upon termination of this Agreement, the Manager will promptly supply to the Trust all property, keys, notes, memoranda, writings, lists, files, reports, tenant lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data or any other tangible product or document which has been produced by, received by or otherwise submitted to the Manager during or prior to the term of this Agreement. (f) The Manager shall at all times be controlled and majority-owned by two of the following individuals: Daniel Friedman, David Schonberger and Anne Nelson Zahner. Such individuals shall be the employees of the Manager who shall be primarily responsible for fulfilling the obligations of the Manager hereunder. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RADIANT PARTNERS, LLC By: /s/ Daniel Friedman ------------------------------- Daniel Friedman, Managing Member FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS By: /s/ William Ackman ------------------------------- Name: William Ackman Title: Chairman -15- EX-10.W 6 AMENDMENT #2 TO EMPLOYMENT AGREEMENT 1 EXHIBIT (10)(w) SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Second Amendment to Employment Agreement dated as of May 12, 2000 (this "Second Amendment") is entered into by and between Anne Nelson Zahner (the "Executive") and First Union Real Estate Equity and Mortgage Investments (the "Company"). RECITALS 1. The Executive and the Company executed an Employment Agreement dated November 2, 1998 (the "Original Agreement"); 2. The Executive and the Company executed an amendment to the Original Agreement dated as of November 30, 1999 (the "First Amendment"); 3. The parties hereto have determined to enter into this Second Amendment for purposes of amending the First Amendment and the Original Agreement. NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements set forth herein, and for other consideration the adequacy of which is hereby acknowledged, the parties hereby agree as follows: A. Any and all rights and obligations of all parties to the First Amendment pursuant Section C. of the First Amendment and all provisions of such Section C. are hereby waived and such Section C. is hereinafter null and void. B. The Company shall pay the Executive a cash payment, subject to all applicable withholding taxes, of $110,000 within five business days from the date hereof. The Executive shall be responsible for the payment of, and be liable for, all taxes imposed on her by reason of such payment. C. The Original Agreement, as amended by the First Amendment and this Second Amendment, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. -1- 2 D. This Second Amendment shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, legal representatives, successors and assigns. In addition, Imperial Parking Corporation shall be a third party beneficiary of this Second Amendment and shall be entitled to enforce this Second Amendment. IN WITNESS WHEREOF, the undersigned have executed this Second Amendment as of the date first above written. FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS By: /s/ William A. Ackman, ---------------------------------- William A. Ackman, Chairman EXECUTIVE: /s/ Anne Nelson Zahner - -------------------------- Anne Nelson Zahner -2- EX-20 7 FINANCIAL STATEMENTS 1 FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS Exhibit 20 Combined Balance Sheets
March 31, (In thousands, except shares) 2000 December 31, (Unaudited) 1999 ---------------------- ------------------ ASSETS Investments in real estate Land $ 53,028 $ 53,028 Buildings and improvements 273,571 271,223 ---------------------- ------------------ 326,599 324,251 Less - Accumulated depreciation (77,987) (75,161) ---------------------- ------------------ Total investments in real estate 248,612 249,090 Investment in joint venture 1,758 1,786 Mortgage loans and notes receivable 2,712 5,426 Other assets Cash and cash equivalents - unrestricted 14,262 45,005 - restricted 5,031 12,836 Accounts receivable and prepayments, net of allowances of $770 and $496, respectively 7,886 10,386 Investments 99,579 104,013 Inventory 3,904 3,395 Unamortized debt issue costs 4,118 4,479 Other 1,304 1,629 Net assets of discontinued operations - 64,747 ---------------------- ------------------ Total assets $ 389,166 $ 502,792 ---------------------- ------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Mortgage loans $ 193,616 $ 195,051 Notes payable 65,120 75,628 Senior notes 12,538 12,538 Accounts payable and accrued liabilities 24,039 37,776 Deferred obligation - 10,579 Deferred items 3,817 1,510 ---------------------- ------------------ Total liabilities 299,130 333,082 ---------------------- ------------------ Shareholders' equity Preferred shares of beneficial interest, $25 liquidation preference, 2,300,000 shares authorized, 1,349,000 shares outstanding in 2000 and 1999 31,737 31,737 Shares of beneficial interest, $1 par, unlimited authorization, outstanding 42,472 42,472 Additional paid-in capital 218,167 218,831 Undistributed loss from operations (202,338) (123,322) Deferred compensation (2) (8) ---------------------- ------------------ Total shareholders' equity 90,036 169,710 ---------------------- ------------------ Total liabilities and shareholders' equity $ 389,166 $ 502,792 ====================== ==================
11 2 FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS Exhibit 20 Combined Statements of Operations
Unaudited (In thousands, except per share data) Three Months Ended March 31, ------------------------------------------ 2000 1999 ----------------- ----------------- Revenues Rents $ 13,941 $ 33,467 Sales 2,383 693 Interest - Mortgage loans 94 115 - Short-term investments 1,892 234 Equity in (loss) income from joint venture (28) 10 Other income 116 175 ----------------- ----------------- 18,398 34,694 ----------------- ----------------- Expenses Property operating 4,019 11,177 Cost of goods sold 2,348 931 Real estate taxes 1,696 3,161 Depreciation and amortization 3,293 8,141 Interest - Mortgage loans 5,047 7,252 - Notes payable 927 2,538 - Senior notes 278 278 - Bank loans and other - 2,623 General and administrative 4,571 2,215 ----------------- ----------------- 22,179 38,316 ----------------- ----------------- Loss before capital (loss) gain, extraordinary loss from early extinguishment of debt, loss from discontinued operations and preferred dividend (3,781) (3,622) Capital (loss) gain (108) 523 Extraordinary loss from early extinguishment of debt (3,092) - ----------------- ----------------- Loss before loss from discontinued operations and preferred dividend (6,981) (3,099) Loss from discontinued operations - (1,793) ----------------- ----------------- Net loss before preferred dividend (6,981) (4,892) Preferred dividend (708) (708) ----------------- ----------------- Net loss attributable to shares of beneficial interest $ (7,689) $ (5,600) ================= ================= Per share data Basic and diluted weighted average shares 42,472 31,376 ================= ================= Loss applicable to shares of beneficial interest before capital (loss) gain, extraordinary loss and loss from discontinued operations $ (0.11) $ (0.14) ================= ================= Loss before extraordinary loss and loss from discontinued operations $ (0.11) $ (0.12) Extraordinary loss from early extinguishment of debt (0.07) - Loss from discontinued operations - (0.06) ----------------- ----------------- Net loss applicable to shares of beneficial interest, basic and diluted $ (0.18) $ (0.18) ================= ================= Combined Statements of Comprehensive Income Net Loss $ (7,689) $ (5,600) Other comprehensive income Foreign currency translation adjustment - 139 ----------------- ----------------- Comprehensive loss $ (7,689) $ (5,461) ================= =================
12 3 FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS Exhibit 20 Combined Statements of Cash Flows
Unaudited (In thousands) Three Months Ended March 31, ----------------------------------------------- 2000 1999 ------------------ ------------------ Cash provided by operations Net loss before preferred dividend $ (6,981) $ (4,892) Adjustments to reconcile net loss before preferred dividend to net cash provided by operations Depreciation and amortization 3,299 8,141 Loss from discontinued operations - 1,793 Extraordinary loss from early extinguishment of debt 3,092 - Capital (gains) loss, net 108 (523) Increase (decrease) in deferred items 2,307 (1,310) Net changes in other assets and liabilities 593 605 ----------------------- ----------------------- Net cash provided by operations 2,418 3,814 ----------------------- ----------------------- Cash provided by investing Principal received from mortgage investments 2,637 15 Proceeds from sale of fixed assets 175 11,092 Purchase of investments (99,232) - Sale of investments 103,666 - Investments in capital and tenant improvements (2,369) (1,861) ----------------------- ----------------------- Net cash provided by investing 4,877 9,246 ----------------------- ----------------------- Cash used for financing Decrease in short-term loans - (11,200) Increase (decrease) in note payable 15,992 (11,093) Repayment of mortgage loans - Normal payments (435) (1,003) - Balloon payments (1,000) - Payment of deferred obligation (10,579) - Deferred obligation repayment penalty (3,092) - Payments for Impark spin-off (36,319) - Purchase of First Union shares - (233) Income from variable stock options (666) - Debt issue costs paid (39) (1,345) Dividends paid on shares of beneficial interest (6,583) - Dividends paid on preferred shares of beneficial interest (708) (708) ----------------------- ----------------------- Net cash used for financing (43,429) (25,582) ----------------------- ----------------------- Decrease in cash and cash equivalents (36,134) (12,522) Cash and cash equivalents at beginning of period 57,841 43,019 ----------------------- ----------------------- Cash and cash equivalents at end of period 21,707 30,497 Change in cash from discontinued operations (2,414) (144) ----------------------- ----------------------- Cash and cash equivalents at end of period, including discontinued operations $ 19,293 $ 30,353 ======================= ======================= Supplemental Disclosure of Cash Flow Information Interest Paid $ 6,592 $ 12,947 ======================= ======================= Supplemental Disclosure of Non-Cash Financing Activities Discontinued operations included in accounts payable $ 2,000 $ - ======================= ======================= Discontinued non-cash net assets charged to dividends paid $ 24,014 $ - ======================= =======================
13 4 Notes to Combined Financial Statements Exhibit 20 Business Segments The Trust's and Company's business segments include ownership of shopping centers, office buildings, parking facilities, mortgage investments and parking and transit ticket equipment manufacturing. Management evaluates performance based upon net operating income which is income before depreciation, amortization, interest and non-operating items. The apartment portfolio was sold in May 1999 and during 1999, the Trust sold 16 shopping centers, two office facilities and a parking lot. Impark and the Trust's Canadian parking facilities are shown as discontinued operations because they were spun off to the Trust's shareholders in March 2000. Property net operating income is property rent and sales revenue less property operating expense, cost of goods sold and real estate taxes. Corporate interest expense consists of the Trust's non-recourse notes payable, senior notes, and borrowings collateralized by U.S. Treasury bills. Corporate depreciation and amortization consist primarily of the amortization of deferred issue costs on non-recourse debt and the leasehold improvements for its corporate office. Corporate assets consist primarily of cash and cash equivalents, leasehold improvements for the corporate office and deferred issue costs for non-recourse debt and senior notes. All intercompany transactions between segments have been eliminated (see table of business segments). Contingent Liability In January 2000, the Trust received $2.5 million from the Richmond Redevelopment and Housing Authority (the "Authority") to expand the Trust's garage located in Richmond, Virginia. If the Trust is unable to successfully complete the renovation or does not continue to provide an easement for a period of 84 years, all or a portion of the $2.5 million will have to be returned to the Authority. The receipt of the $2.5 million has been recorded as a deferred item at March 31, 2000. Construction began in April 2000. Deferred Obligation In January 2000, the Trust repaid a $10.6 million deferred obligation relating to the purchase of the Huntington garage resulting in a prepayment penalty of $3.1 million. 14 5 Distribution of Impark Exhibit 20 In March 2000, the Trust distributed all common stock of Impark to its shareholders. One share of Impark common stock was distributed for every 20 of the Trust's common shares of beneficial interest held on March 20, 2000. Approximately 2.1 million shares of Impark common stock were distributed. As part of the spin-off, the Trust repaid Impark's bank credit facility of approximately $24.2 million, contributed approximately $7.5 million of cash, its 14 Canadian parking properties and $6.7 million for a parking development located in San Francisco, California. The Trust will also provide a secured line of credit for $8 million to Impark. Ownership of Ventek International, Inc., a manufacturing subsidiary of Impark, was retained by the Company. The Trust also adjusted the conversion price with respect to its Series A Cumulative Redeemable Preferred Shares of Beneficial Interest ("Preferred Shares"). The conversion price of the Preferred Shares has been decreased to $5.0824 per common share (equivalent to a conversion rate of 4.92 common shares for each Preferred Share) in connection with the distribution of the Impark shares, in accordance with the provisions of the documents establishing the terms of the Preferred Shares. Subsequent Events In April 2000, the Trust obtained a $42 million first mortgage loan secured by the Park Plaza Mall. The loan is non-recourse, has a 10 year term and a fixed interest rate of 8.69% payable on a 30 year amortization schedule. The Trust received proceeds, net of closing costs and escrow deposits, of $41.4 million. The loan requires monthly payments of approximately $397,000 for principal, interest and escrow deposits. Prepayment of the loan is permitted (after an initial lockout period of three years or two years from securitization), only with yield maintenance or defeasance, as defined in the loan agreement. In April 2000, the Trust sold Crossroads Center Mall for $80.3 million, of which approximately $78.3 million was applied against a loan payable to the purchaser and the assumption of the first mortgage debt on the mall. The Trust will recognize a gain on the sale of approximately $58 million, less an extraordinary loss on extinguishment of debt of approximately $2.4 million during the second quarter of 2000. Pro Forma Financial Information The following pro forma combined balance sheet as of March 31, 2000 and the pro forma combined statement of operations for the three months ended March 31, 2000 give effect to the sale of the Trust's Crossroads Center Mall, the spin-off of Impark and the Canadian parking facilities, and the financing of Park Plaza Mall. The adjustments related to the pro forma combined balance sheet assume the transactions were consummated at March 31, 2000, while the adjustments to the pro forma combined statement of operations assume the transactions were consummated at January 1, 2000. The spin-off of Impark occurred in March 2000. The sale and financing occurred in April 2000. These pro forma adjustments are not necessarily reflective of the results that actually would have occurred if the sale, spin-off and financing had been in effect, as of, and for the periods presented or what may be achieved in the future. 15 6 FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS Pro Forma Combined Balance Sheet March 31, 2000 (Unaudited) (In thousands)
Sale of Historical Crossroads Center ----------------------------- -------------------------- ASSETS Investment in real estate Land $ 53,028 $ (5,490) Building and improvements 273,571 (30,126) -------------------------------- ------------------------------ 326,599 (35,616) Less - Accumulated depreciation (77,987) 14,637 -------------------------------- ------------------------------ Total investment in real estate 248,612 (20,979) Investment in joint venture 1,758 Mortgage loans and notes receivable 2,712 Other assets Cash and cash equivalents - unrestricted 14,262 1,946 - restricted 5,031 (704) Accounts receivable and prepayments, net of allowances 7,886 (1,153) Investments 99,579 Inventory 3,904 Unamortized debt issue costs, net 4,118 (2,409) Other 1,304 -------------------------------- ------------------------------ Total assets $ 389,166 $ (23,299) ================================ ============================== LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities Mortgage loans $ 193,616 $ (76,243) Notes payable 65,120 Senior notes 12,538 Accounts payable and accrued liabilities 24,039 (2,986) Deferred items 3,817 (966) -------------------------------- ------------------------------ Total liabilities 299,130 (80,195) -------------------------------- ------------------------------ Shareholder's equity Preferred shares of beneficial interest 31,737 Shares of beneficial interest 42,472 Additional paid in capital 218,167 Undistributed loss from operations (202,338) 56,896 Deferred compensation (2) -------------------------------- ------------------------------ Total shareholder's equity 90,036 56,896 -------------------------------- ------------------------------ Total liabilities and shareholder's equity $ 389,166 $ (23,299) ================================ ============================== Park Plaza Financing Pro Forma ---------------------- ------------------------- ASSETS Investment in real estate Land $ $ 47,538 Building and improvements 243,445 ------------------------- ---------------------------- 290,983 Less - Accumulated depreciation (63,350) ------------------------- ---------------------------- Total investment in real estate 227,633 Investment in joint venture 1,758 Mortgage loans and notes receivable 2,712 Other assets Cash and cash equivalents - unrestricted 41,400 57,608 - restricted 4,327 Accounts receivable and prepayments, net of allowances 6,733 Investments 99,579 Inventory 3,904 Unamortized debt issue costs, net 600 2,309 Other 1,304 ------------------------- ---------------------------- Total assets $ 42,000 $ 407,867 ========================= ============================ LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities Mortgage loans $ 42,000 $ 159,373 Notes payable 65,120 Senior notes 12,538 Accounts payable and accrued liabilities 21,053 Deferred items 2,851 ------------------------- ---------------------------- Total liabilities 42,000 260,935 ------------------------- ---------------------------- Shareholder's equity Preferred shares of beneficial interest 31,737 Shares of beneficial interest 42,472 Additional paid in capital 218,167 Undistributed loss from operations (145,442) Deferred compensation (2) ------------------------- ---------------------------- Total shareholder's equity - 146,932 ------------------------- ---------------------------- Total liabilities and shareholder's equity $ 42,000 $ 407,867 ========================= ============================
See notes to combined financial statements. 16 7 FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS Pro Forma Combined Statement of Operations For the three months Ended March 31, 2000 (Unaudited) (In Thousands, Except per Share Data)
Sale of Historical Crossroads Center ------------------------- ---------------------------- Revenues Rents $ 13,941 $ (2,435) Sales 2,383 Interest - Mortgage loans 94 - Short-term investments 1,892 (2) Equity in income from joint venture (28) Other Income 116 (6) ----------------------------- -------------------------------- 18,398 (2,443) ----------------------------- -------------------------------- Expenses Property operating 4,019 (428) Cost of goods sold 2,348 Real estate taxes 1,696 (554) Depreciation and amortization 3,293 (581) Interest - Mortgage loans 5,047 (2,055) - Notes payable 927 - Senior notes 278 General and administrative 4,571 ----------------------------- -------------------------------- 22,179 (3,618) ----------------------------- -------------------------------- Income (loss) before capital loss, extraordinary loss and preferred dividend $ (3,781) $ 1,175 ============================= ================================ Per share data Basic and diluted weighted average shares 42,472 ============================= Loss before capital loss, extraordinary loss and preferred dividend, basic and diluted $ (0.09) ============================= Spin-off of Park Plaza Impark Financing ------------------------------ ------------------------- Revenues Rents $ $ Sales Interest - Mortgage loans - Short-term investments (465) (1) Equity income from joint venture Other Income ------------------------------ --------------------------- (465) - ------------------------------ --------------------------- Expenses Property operating Cost of goods sold Real estate taxes Depreciation and amortization Interest - Mortgage loans 912 - Notes payable - Senior notes General and administrative ------------------------------ --------------------------- - 912 ------------------------------ --------------------------- Income (loss) before capital loss, extraordinary loss and preferred dividend $ (465) $ (912) ============================== =========================== Per share data Basic and diluted weighted average shares Loss before capital loss, extraordinary loss and preferred dividend, basic and diluted Pro Forma --------------------------- Revenues Rents $ 11,506 Sales 2,383 Interest - Mortgage loans 94 - Short-term investments 1,425 Equity in income from joint venture (28) Other Income 110 ------------------------------ 15,490 ------------------------------ Expenses Property operating 3,591 Cost of goods sold 2,348 Real estate taxes 1,142 Depreciation and amortization 2,712 Interest - Mortgage loans 3,904 - Notes payable 927 - Senior notes 278 General and administrative 4,571 ------------------------------ 19,473 ------------------------------ Income (loss) before capital loss, extraordinary loss and preferred dividend $ (3,983) ============================== Per share data Basic and diluted weighted average shares 42,472 =========================== Loss before capital loss, extraordinary loss and preferred dividend, basic and diluted $ (0.09) ==============================
(1) Interest income earned on cash utilized in the Impark spin-off. See notes to combined financial statements. 17 8 Business Segments Exhibit 20
Three Months Ended March 31, ---------------------------- 2000 1999 ------------------------- ---------------------------- Rents and Sales Shopping Centers $ 8,171 $ 22,791 Apartments - 4,152 Office Buildings 2,955 3,571 Parking Facilities 2,815 2,683 Ventek 2,383 693 Corporate - 270 ------------------------- ---------------------------- $ 16,324 $ 34,160 Less - Operating Expenses and Costs of Goods Sold Shopping Centers 2,227 7,673 Apartments - 1,375 Office Buildings 1,392 1,657 Parking Facilities 322 259 Ventek 2,348 931 Corporate 78 213 ------------------------- ---------------------------- $ 6,367 $ 12,108 Less - Real Estate Taxes Shopping Centers 948 2,164 Apartments - 288 Office Buildings 272 259 Parking Facilities 476 450 ------------------------- ---------------------------- $ 1,696 $ 3,161 Property - Net Operating Income (Loss) Shopping Centers 4,996 12,954 Apartments - 2,489 Office Buildings 1,291 1,655 Parking Facilities 2,017 1,974 Ventek 35 (238) Corporate (78) 57 ------------------------- ---------------------------- $ 8,261 $ 18,891
18 9 Business Segments (Continued) Exhibit 20
Three Months Ended March 31, ---------------------------- 2000 1999 ------------------------- ---------------------------- Less - Depreciation and Amortization $ 3,293 $ 8,141 Less - Interest Expense $ 6,252 $ 12,691 Mortgage Investment Income $ 94 $ 115 Corporate Income (Expense) Short-term investment income 1,892 234 Other income 88 185 General and administrative (4,571) (2,215) ------------------------- ---------------------------- Loss before Discontinued Operations, Capital Gain (Loss) and Extraordinary Loss $ (3,781) $ (3,622) ========================= ============================ Capital Expenditures Shopping Centers $ 247 $ 1,101 Apartments - 181 Office Buildings 2,081 579 Parking Facilities 20 - Ventek 21 - ------------------------- ---------------------------- $ 2,369 $ 1,861 ========================= ============================ March 31, --------- 2000 1999 ------------------------- ---------------------------- Identifiable Assets Shopping Centers $ 152,529 $ 439,462 Apartments - 77,575 Office Buildings 44,351 42,926 Parking Facilities 73,114 72,045 Mortgages 2,712 5,493 Ventek 6,517 3,940 Corporate 109,943 25,114 ------------------------- ---------------------------- Total Assets (net of discontinued operations) $ 389,166 $ 666,555 ========================= ============================
19 EX-27 8 FINANCIAL DATA SCHEDULE
5 0000037008 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 19,293,000 0 8,656,000 (770,000) 3,904,000 0 326,599,000 77,987,000 389,166,000 0 271,274,000 42,472,000 0 31,737,000 15,827,000 389,166,000 0 16,506,000 2,348,000 9,008,000 4,571,000 0 6,252,000 0 0 (3,781,000) 0 (3,092,000) 0 (7,689,000) (.18) (.18)
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